First, pre-merger financial risks and prevention
Before implementing M&A plan, M&A enterprises need to select target enterprises and specific M&A methods. Therefore, the risk before M&A is mainly the risk brought by these two options.
1. Under the condition of market economy, as an independent economic subject, the M&A behavior of an enterprise should conform to its own interests and the long-term development strategy of the purchasing subject enterprise. The purpose of M&A is mainly to seek synergy, realize strategic reorganization, or for some specific goals. Therefore, before M&A, we must carefully consider choosing a suitable target enterprise, but in practice, there are many cases of multiple-choice failure. For example, because many enterprises blindly carry out mixed mergers and acquisitions or blindly enter unrelated fields, they finally enter the misunderstanding of diversification, which drags them down and is not conducive to the development of main procurement enterprises. These are all risk losses caused by not considering the target enterprise.
2. There are many ways of M&A of enterprises, including stock acquisition, asset acquisition and merger. Equity acquisition includes overall equity acquisition, controlling equity acquisition and debt equity acquisition. There are four kinds of asset acquisition: scale expansion, backdoor listing and reorganization and replacement. Each method needs a different amount of capital, and different M&A methods have their own advantages and disadvantages. Therefore, M&A enterprises should choose the appropriate M&A method according to their own capital scale and the advantages and disadvantages of various methods, so as to reduce the risk loss caused by the choice.
Second, the financial risk in the implementation stage of M&A and its prevention
1. Financing risk.
Financing risk refers to whether an enterprise can raise enough funds in the process of merger and acquisition and whether it can ensure the smooth progress of merger and acquisition. If the financing arrangement is improper or the connection with enterprise operation is not perfect, it will form financing risk, and financing will bear many avoidable benefits too early; If financing is too late or too slow, there will be insufficient funds or abnormal supply of funds, which will lead to the failure of mergers and acquisitions. Therefore, the arrangement of financing is also the focus in the process of mergers and acquisitions. There are two main financing methods: internal financing and external financing.
Internal financing means that all the funds needed by an enterprise come from internal self-retained funds. The advantage of endogenous financing is that it does not need to pay interest and has no pressure to repay loans, which can reduce the cost of mergers and acquisitions and the bankruptcy image that may be caused by failure to repay loans, but it also has shortcomings that cannot be ignored; Make full use of its own funds. First, Chinese enterprises are generally small in scale and unable to bear the huge amount of funds needed for mergers and acquisitions alone. Making full use of valuable self-owned funds for mergers and acquisitions will affect the ability of enterprises to cope with external markets and resist risks. If further financing cannot be carried out smoothly, it is very likely that the enterprise will not operate normally, not to mention the merger plan of the enterprise.
External financing means that enterprises use external means to raise M&A funds, including equity financing, debt financing and mixed securities financing.
Equity financing refers to the financing of enterprises through capital increase and share expansion. By issuing a large number of stocks for financing, a large number of long-term available funds can be raised, and because the stocks themselves have no definite interest payment date and repayment period, the capital risk of enterprises is small. However, because it takes a long time to issue shares, the issuance fee is high, which is not conducive to the convergence of funds in the M&A process. It is more likely that shareholders will dilute their control over the enterprise because of a large number of shares, and even the major shareholders will lose control over the whole enterprise, which is not conducive to the long-term development of the enterprise.
Debt financing refers to a means for enterprises to obtain funds by borrowing. The capital cost of loan financing is low, and the interest paid can be deducted before tax to achieve the effect of tax avoidance. Moreover, the loan financing time is short, which will not dilute the shareholders' control over the enterprise, and the procedures are simple and easy to use. However, debt financing has great limitations. It is difficult for enterprises with high debt ratio to obtain funds in this way, and banks or creditors have harsh conditions for providing funds. Once an enterprise can't properly grasp the debt scale, excessive debt ratio or business risk of the enterprise, if it can't repay the due loan and interest, it will make the enterprise face great risk of bankruptcy.
To solve the financing risk, we must first reasonably choose the financing mode and structure of mergers and acquisitions and follow the principle of minimizing the cost of capital; Debt financing and equity financing should maintain an appropriate proportional relationship; In addition, short-term debt and long-term debt should be reasonably matched to minimize financing risks. Finally, when choosing a financing scheme, M&A enterprises must choose the best combination of financing methods, plan the financing structure, comprehensively evaluate the possible financial risks of various schemes, and choose the scheme with less risk on the premise of ensuring the realization of M&A goals.
2. Information risk of enterprise merger and acquisition.
Due to the information asymmetry, the "hidden project" of moral hazard and the influence of legal policies, there are often a lot of information risks hidden in mergers and acquisitions. Due to the asymmetric information between the acquirer and the acquirer, the transferor often packages the target company, conceals unfavorable information and exaggerates favorable information, while the acquirer often exaggerates its own strength and creates expected space, and the information disclosure of both parties is insufficient or distorted. Therefore, there are many cases in which mergers and acquisitions fail or they are found to have been cheated after the transaction.
On the one hand, information risk prevention measures should require the other party to be true and complete, and will not mislead the disclosure of all their information and make a guarantee; On the other hand, it is necessary to seriously investigate and evaluate the external environment and internal situation of the other party and fully understand its current situation and potential risks. Disclosure of information, to ensure that all parties to the merger and acquisition disclose all the information they deserve in the most direct, reasonable, scientific, professional and clear language, and make statements, promises and guarantees. Including: the transferor guarantees to the acquirer that there is no significant information hiding, and the acquirer guarantees to the transferor that it has the legal ability and financial ability to acquire the target company, so as to protect its own interests and eliminate possible risks in mergers and acquisitions. For possible risks, the other party should be required to provide a written commitment as a guarantee to prevent risks and the basis for claims, and the M&A contract should stipulate the liability for breach of contract and other relief measures to prevent problems before they occur.
3. Take risks.
Cash payment refers to the acquisition of companies by enterprises with cash as a tool, with the greatest financial risk. First, there are very strict requirements on the cash flow and quantity of enterprises, which is the key to the completion of mergers and acquisitions; Second, due to the direct use of cash for payment, it is very likely that there will be exchange differences, resulting in redundant exchange losses; Third, completely paying in cash will lead to the reduction of shareholders' rights and interests, which may cause shareholders' resistance to mergers and acquisitions and increase the financial risks of mergers and acquisitions.
Stock exchange is to replace the shares of the target enterprise with the shares of the acquirer, that is, to exchange shares for shares. The use of stock exchange and equity financing will dilute shareholders' control over the enterprise, and the risk of stock dilution is determined by the stock dilution rate. When the stock dilution rate changes dramatically before and after the merger, it shows that the merger will bring huge stock dilution risk to the original shareholders of the enterprise. If the dilution rate of equity is less than 50% after the issuance of new shares, it means that the risk of equity dilution is high; On the contrary, it means that the risk of equity dilution is low. When the major shareholder's equity is diluted to such an extent that it can't effectively control the post-merger enterprise, and the major shareholder is unwilling to give up this control, the major shareholder may oppose the merger and make the merger and acquisition activities impossible. In addition, issuing new shares for the purpose of M&A is not only costly, but also time-consuming and complicated.
For cash payment mergers and acquisitions, the first consideration is the liquidity of assets. The higher the quality of current assets and quick assets, the higher the liquidity, which also shows that enterprises can obtain acquisition funds quickly and smoothly.
Because liquidity risk is the structural risk of assets and liabilities, it is difficult to resolve in the market and must be matched by adjusting assets and liabilities. At the same time, strengthen the management of working capital and reduce working capital. By establishing a liquid asset portfolio, part of the funds will be applied to the securities portfolio with high credit and good liquidity, so as to achieve both liquidity and profitability, meet the liquidity needs of M&A enterprises and reduce liquidity risks.
For the merger and acquisition of equity payment, we should comprehensively consider the growth, development opportunities, complementarity and synergy of the target enterprise, comprehensively evaluate the assets of both parties, and correctly determine the share exchange ratio. At present, the conversion criteria or basis adopted by both parties to the merger and acquisition mainly include share price per share, net assets per share and earnings per share.
Third, the financial risks after the completion of mergers and acquisitions and their prevention
After the merger, the main thing is to integrate risks. If we can't take positive actions and quickly integrate the merged enterprise into the organizational structure of the merged enterprise after the merger, the merger may still fail.
Careful financial review should be carried out before integration. The financial review before integration includes the review of M&A enterprise's own resources and management ability and the review of the target enterprise. Financial review before integration can provide feasibility analysis for the operation of M&A enterprises. You can also find the financial problems of the merged enterprises through the audit, so as to have a clear aim in the integration process and improve the integration efficiency. The main purpose of financial review is to make the acquirer determine the financial status provided by the acquired enterprise, and its review contents include the tangible and intangible assets that need to be integrated after the merger, the required capital investment, the negative storage structure of the enterprise, and the existing financing capacity. Strengthen the organizational structure integration after enterprise merger and acquisition. Organizational structure integration is mainly the institutional setup after the merger and reorganization of enterprises, and the key is to merge the personnel arrangements of both parties. Merger and acquisition enterprises should formulate the management system and employment standards of the post-merger enterprises as soon as possible according to the development goals of the enterprises, so as to make the best use of their talents. Try to retain talents and prevent team behavior from weakening, irresponsibility, negative rights and interests and disturbing work order during the running-in process. After merger and acquisition, in order to give full play to the advantages of human capital and further tap its potential, it is necessary to correctly evaluate the value of human capital according to its characteristics. After M&A, the operating performance of most enterprises will be significantly improved in the future. As a result, the scale of assets continues to expand, profitability continues to decline, and different business units lack internal relations and necessary mutual support. The main business and sideline business will compete for limited enterprise resources, which will drag down the main business and make the sideline business unsustainable. This phenomenon is largely caused by not paying attention to the integration of financial strategies after mergers and acquisitions.
In a word, how to avoid M&A risk is the core issue of enterprise merger and acquisition. M&A risk is possible, not inevitable. Therefore, as long as preventive measures are taken seriously, the expected M&A goal can be achieved.