Research On Financial Risk Control Of "Snake Swallow Elephant" Cross-border M&A Of SHUZHI.AI

Among all the ways of cross-border investment,mergers and acquisitions are considered the most efficient with their advantages as to obtain strategic resources,improve industrial chains,and enhance core competitiveness of enterprises.Therefore,cross-border M&As have been widely used in capital markets of various countries.However,there is no denying that cross-border M&As do have uncertainties within their process,especially financial risks.As a part of M&A risks,financial risks exist in all aspects of cross-border M&As.At the same time,with the popularity of leveraged M&As,there are more and more cases in which enterprises take advantage of leverages to acquire a huge target company with a small amount of funds,while many of them are trapped in great financial risks and failed at last.So,how should enterprises reasonably avoid financial risks that exist in process of M&As and maximize the benefits of M&As?This thesis takes the typical cross-border "snake swallow elephant" M&A case of SHUZHI.AI’s acquisition of BBHI as the research object,and focuses on the following issues:First,compared with the financial risks in general domestic M&As,what are the particularities of those in cross-border "snake swallow elephant" M&As?Second,what roles do listed companies play in controlling M&A financial risks when they introduce buyout funds in their foreign investment activities?Third,compared with valuation adjustment mechanism which is widely used at home,what are the advantages of Earn-out agreements on controlling financial risks in cross-border "snake swallow elephant" M&As?At the theoretical level,this thesis uses risk management theory,information asymmetry theory,prioritized financing theory,and synergy theory as the theoretical basis.It sorts out and summarizes literatures related to "snake swallow elephant" M&As,financial risks in cross-border M&As,relationships between buyout funds and financial risks,relationships between Earn-out agreements and financial risks in M&As,and then conducted a literature review;at the level of case analysis,this thesis first identifies and evaluates the financial risks that SHUZHI.AI faced in its "snake swallow elephant" cross-border acquisition of BBHI,and then analyzes the effects of setting up a buyout fund and signing the Earn-out agreement according to the risk control measures taken by SHUZHI.AI.This thesis lastly use financial capability analysis and Z-score model to analyze the effects of control measures taken by SHUZHI.AI to lower the financial risks of "snake swallow elephant"acquisition.Based on the above analysis,this thesis draws the following conclusions:First,cross-border "snake swallow elephant" M&As are different from general M&As.Because of the increased influence of information asymmetry,huge amount of funds required,macro-environmental restrictions on payment methods,and differences in terms on accounting systems,financial risks in cross-border "snake swallow elephant" M&As are special,presenting the overall characteristics of uncertainty,dynamic instability,and comprehensiveness;second,acquiring assistances from professional financial intermediaries is an effective way to reduce cross-border investment risks and promote projects to proceed smoothly.In this cross-border M&A,SHUZHI.AI made full use of the advantages of the buyout funds in terms of experience and resources to overcome the limitations in aspects of information acquisition and financing,which are faced by domestic listed companies when conducting cross-border investments,and effectively reduced financial risks in this cross-border M&A;third,the use of reasonable valuation adjustment mechanism is the guarantee for the smooth completion of cross-border M&As.Compared with valuation adjustment mechanism,not only the installment payment mechanism of Earn-out agreements eases the financing and payment pressure of the acquirer to a large extent,but also the setting of performance indicators and retention bonus mechanism of it effectively reduces the premium risks and financial integration risks in M&As.So,Earn-out agreements have played a relatively good role in controlling financial risks in cross-border "snake swallow elephant" M&As.I hope the conclusion of this thesis can provide some enlightenment for Chinese enterprises to deal with financial risks in M&As.