Research On The Economic Consequences Of Applying Performance Commitment Agreements In Enterprise M&A

With the increasingly fierce competition among enterprises,endogenous growth can no longer meet the development needs of enterprises.In the context of the continuous development and improvement of the capital market,more and more enterprises want to expand their scale and improve their competitiveness through mergers and acquisitions.However,there are often problems such as information asymmetry between the two parties in mergers and acquisitions,which can lead to unreasonable mergers and acquisitions premiums.In order to reasonably control the premium and improve the success rate of mergers and acquisitions,performance commitment agreements emerged as a valuation adjustment agreement.However,in the practical application of a large number of performance commitment agreements,their failure rate is increasing year by year,even exceeding 50% by 2022.The failure of performance commitment agreements has not resulted in better synergy in M&A activities,but has a negative impact on the economic consequences of M&A enterprises,especially in the asset-light industry represented by advertising media.This article explores the economic consequences of the merger and acquisition of Zhuhai Shitong and Shanghai Zhiqu under the performance commitment agreement of Inly Media,further analyzes the reasons for the failure,and puts forward suggestions.Firstly,based on reviewing the relevant literature on performance commitment agreements,this paper theoretically analyzes the impact of relevant concepts and performance commitments on M&A premiums and economic consequences.Secondly,based on the background of the case and the elaboration of the performance commitment plan,the motivation for signing the performance commitment agreement is analyzed.Thirdly,analyze the economic consequences of performance commitments in mergers and acquisitions.Analyze the short-term market reaction caused by performance commitments through the event study method.Judging from the excess returns before and after the issuance of the three performance commitment related announcements,the positive news about the signing of the performance commitment agreement caused a positive short-term market reaction,but the duration was too short.The stock market reaction continued to be sluggish before and after the issuance of the two merger and acquisition enterprise performance failure announcements,There is a possibility that shareholders and senior executives of the company may use internal information to reduce their holdings in advance.From the perspective of financial performance analysis,select representative financial indicators to analyze the changes in the company’s solvency,profitability,operating ability,and growth ability before,during,and after the performance commitment period.In terms of solvency,the large amount of cash payments required for mergers and acquisitions has led to a significant increase in borrowings and interest from Inly Media,as well as significant goodwill impairment caused by the substandard performance of the underlying enterprise,which has seriously deteriorated the company’s long-term and short-term solvency and increased financial risk;In terms of profitability and growth ability,in the first year of the performance commitment period,both capabilities have significantly improved,mainly due to the injection of digital marketing business and operating performance of the merged enterprise.However,in the following years,relevant financial indicators have fluctuated significantly,some even showing negative values,far below the industry average,and the company’s development prospects are not optimistic;In terms of operating capacity,the impact of M&A performance commitments on it is not significant.The increase in related indicators of performance commitments in the later period is also due to goodwill impairment and the improvement in the overall industry environment.Although it has been higher than the industry average,the level of enterprise management has not improved.From the perspective of goodwill analysis,the high goodwill generated by the performance commitment agreement resulted in goodwill impairment due to the failure to achieve performance goals,resulting in the first loss of the parent company and a significant decrease in assets;From the perspective of major shareholder reduction,major shareholders and company executives led by Luo Yanji and Jiang Li frequently use hot spots to raise stock prices and internal information to reduce losses caused by failure of performance commitments,seriously damaging the interests of small and medium-sized shareholders.Then,from the perspective of the application of performance commitment agreements,we explore the reasons why the economic consequences do not meet expectations,and find that there are four major issues: excessive M&A premiums for the target enterprise,unreasonable design of performance commitment agreements,low efficiency of M&A integration,and weak binding performance commitment agreements.Finally,in view of the existing problems,this paper proposes relevant suggestions on the application of performance commitment agreements in enterprise mergers and acquisitions,hoping to improve the application effect of performance commitment agreements in mergers and acquisitions.This article,through a case study of the acquisition of Zhuhai Shitong and Shanghai Zhiqu through the performance commitment agreement applied by Inly Media,can enrich the research on enterprise merger activities to a certain extent,and provide guidance for enterprises to apply performance commitment agreements in mergers and acquisitions.