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M&A refers to corporate mergers and acquisitions. At the same time, M&A is also an important means for enterprises to grow and develop. Through M&A, enterprises can maximize their own interests. However, M&A is essentially a financial activity, and enterprises will face certain risks and uncertainties during M&A, which may lead to the deterioration of their financial situation and even the loss of financial achievements. Therefore, avoiding and preventing M&A financial risks has become the key to the success of enterprises. Today, Bian Xiao will introduce the meaning and types of financial risks in enterprise mergers and acquisitions.
First, the meaning of financial risks in enterprise mergers and acquisitions
Enterprise merger and acquisition is the abbreviation of enterprise merger and acquisition. The financial risk of an enterprise usually refers to the risk brought by financing decision. The choice of financing channels and the difference of financing amount will inevitably lead to the change of enterprise capital structure and the uncertainty of financial situation. M&A itself is a financial activity, and the success of M&A has a great influence on the financial situation of enterprises. The financial risk of M&A refers to the uncertainty that various financial activities involving M&A lead to the deterioration of financial situation or the loss of financial results. ..
Two. Types of financial risks of M&A:
1, the value evaluation risk of the target company
In the process of M&A, an enterprise can consider the M&A price of the acquired company according to its annual report, financial statements and other information, and can also comprehensively consider the M&A price through on-site inspection of the acquired company's R&D team, R&D products, modernization capability and modernization core technology, as well as communication with the management, marketing and R&D group of the acquired company. M&A company can also selectively disclose financial information that is beneficial to itself or not fully and accurately disclose information that affects the price, thus affecting the enterprise to make a reasonable judgment on M&A company's M&A price. The key to the success of M&A is the appropriate transaction price. Because of the different motives and considerations of both parties, the price evaluation methods adopted are also different, which makes the pricing extremely complicated and will bring certain financial risks to the enterprise.
2. Financing risk
Financing risk refers to the risk of income change caused by financing plan in financing activities. There are two factors that affect the financing risk of M&A enterprises: financing ability and financing structure. Financing ability is the most important factor affecting the financing of enterprise mergers and acquisitions. How to use internal and external capital channels to raise funds on time and in full is the key to the success of enterprise merger and acquisition. Financing structure is the main factor affecting financing risk. If the actual operating profit rate after M&A is less than the debt interest rate, it may lead to the risk of paying interest and repaying principal on schedule.
3. Payment risk of enterprise merger and acquisition.
Payment risk mainly refers to M&A fund use risk related to liquidity and equity dilution, which is closely related to financing risk and debt risk. There are mainly the following categories: cash payment risk. The use of cash payment instruments puts the company under greater cash pressure, which may limit the transaction scale. Equity dilution risk of equity payment. The leadership may dilute the original equity by selling shares for many times, raising funds by allotment, investing in securities and conducting mergers and acquisitions, on the other hand, it also brings risks to its capital operation. Debt risk of leveraged payment. Leveraged payment can gain control of larger assets with less capital, but it puts the merged company in a risk position of high leverage and high debt, which increases the difficulty of operational integration after the merger.
From this point of view, M&A has various types of financial risks. Correctly understanding the meaning of M&A financial risks, comprehensively considering the economic pressure brought by M&A, planning a set of safe M&A cases to maximize the interests of enterprises, avoiding more M&A financial risks and achieving a win-win situation are the key to solving the financial risks encountered by M&A enterprises. For more relevant knowledge, please consult Shanxi lawyers.
Extended reading:
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What are the contents of the statement about guarantee in enterprise merger and acquisition?