发布时间 : 星期六 文章TheStudyofFinancialRiskinM&A（并购的财务风险研究）-外文翻译更新完毕开始阅读68ae3683551810a6f424860c
International Journal of business and management[J]January2009
The Study of Financial Risk in M&A
JohnA . Douka
Abstract
M &A is a risky activity. M & A business, whether in the preparation stage, or in the operational phase of the merger, or post-integration phase, will be accompanied by a large number of uncertainties. These uncertainties brought about by mergers and acquisitions could lead to a huge financial risk. In particular, more domestic enterprises have chosen the path of M & A. This article focuses on the various stages of the merger vulnerable to financial risks, and risks of these raised a number of preventive measures.
Keywords: M&A, Financial risk, Preventive measures
In the west countries, M&A have a history about more than 100 years, and transactions have been expanding. The 5th wave of global mergers and acquisitions peaked in 2000.In our country, M&A become more and more popular. For example, many companies step up the pace of overseas expansion and M&A. However, , many companies choose M&A to tide over the difficulties. As we known, M&A must have risks, for instance: estimate of target firms, choice of transaction method, or financial risks. How can avoid these risks? Which method should we choose? This is the purpose of this article.
1.The cause of financial risk in M&A
1.1 Overestimate or underestimate the value of firms lead to the risk 1.1.1 Information asymmetry is the major factor which impacts the estimation
Because of Information asymmetry, target firm always conceal adverse information and exaggerate good information. Bidders also exaggerate their strength, disclosure between them are inadequate or distorted. Therefore, failures which result from rash actions can be found everywhere. There are many information risks, for tow important examples: first, equity risk, equity is very important in any firms, however there are difference between the offer information and the real, these illusive information threaten the succeed of M&A; second, debt information risk, if this risk would not be found, a large debt will fall to the bidders with no reasons. 1.1.2 Lack of rational evaluation methods
There are three evaluation methods: replacement cost method; market value
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method; the present value of earnings, between them, market value method has high request about Information symmetry, for firms can make an exact evaluation only when the information is high symmetry. However, in our country, the level of information symmetry is lower, little firms adopt this method. Most of them adopt replacement method and the present value of earnings method. These two methods also have disadvantages, replacement cost reflects the historical cost which can’t reflect the future profitability; although the present value considers the value-added revenue, it has also obvious flaws, that is, future revenue expected is very different. 1.1.3 The system of assessment is not perfect
Here is the assessment system in the whole industry, rather than a simple method. At present, our country is lack of independent, professional bodies, the majority of overseas M&A is completed by the enterprises themselves, on this point there is a certain degree of irrationality. Because lack of professional skills, and there is no habits of long-term follow-up observation, and can’t receive long-term and stable information and so on, all this lead to the result can’t follow the expectation. 1.2 Risk result from the choice of transaction methods 1.2.1 Cash method
If you expect there is no risk in cash payment, you must make the present value of incremental of expected cash flow net present value is greater than the paid, whereas shareholders of bidders will bear the loss. When the cost of cash payment is expansion, and face huge debt burden, and the source of funding deadline is unreasonable structure, or lack of short-term financing, it is easy to bring to the acquisition of liquidity pressure. At this time if the new company has a low level of liquid assets, it will have a liquidity risk, and liquidity risk is the most outstanding performance of cash payment. 1.2.2 Common stock payment
On the whole, the major risk of stock payment comes from the value-added expectation, the stock exchange expand the shareholder’s base, leading to the decline of earnings per share, when investors doubt the target firm’s ability of getting back earnings per share, the stock price of bidder will decline because of dilution of earnings per share. It shows that the proportion of equity dilution resulting from the convertible is the most important means of payment risks. 1.2.3 Leverage payment
Leverage will inevitably bring the debt risk. Leverage is the bidders make target
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enterprise assets as collateral for loan to banks, post-merger success with the production and operation activities generated cash to repay the loan. The aim of leverage payment is to solve the fund problem by using the loans, and hope that the acquisition can receive effective leverage benefit. This method is bound to achieve a high return on investment and it need stable cash flows to complete. Otherwise, the acquiring company may go bankrupt because of can’t pay off the higher debt. 1.3 Financial risk resulting from adverse integration in the post-merger
In the integration period, when the role of risk factors come to a certain extent, that will lead to the occurrence of financial risks. According to the manifestations, financial risk can be divided into the mechanisms risk, financial risk and operational risk. Mechanisms risk means in the integration period, because of setting up financial institutions, financial functions, financial management system, update of financial organizations, financial synergies, and other factors, the financial income and financial gains of bidders occurred in a departure from expectations, and thus suffer losses. Financial risk means financial income and financial revenue will depart from the expected if there is something wrong with the financial running. In the process of asset management, bidders control their assets, costs, financial operations, liabilities, profits, and other financial functions in accordance with the principle of maximizing the synergy earnings in order to achieve the final purpose of mergers and acquisitions. However, the uncertainty of macro-and micro-environment affect the decision-making process in the financial operation, which lead to financial risk. Operational risk means financial risk result from inadequate monitoring of financial activities.
That shows process ending is not equals to final succeed, financial integration is the end of financial management in the M&A, and is also the most important aspect, if it failed it means the whole M&A is failed. 2．Prevention measures of financial risk 2.1 Prevention for information risk
The important role for this prevention is to rule out the false information through legitimate and effective method and then to get real, comprehensive information. For the equity risk, there are two main points: an appropriate cautiousness and disclosure. Appropriate cautiousness means a process of investigation, review and evaluation. Bidders must investigate the external and internal situation of target firms, in order to find some government activities which restrict property right transaction. Disclosure means that the target company should tell the bidders just as relevant materials,
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information, debt claims and so on. Disclosure must be true, complete and not misleading. As for the debt risk, we must first choose the best method; second, you must make an agreement about debt scope.
2.2 Establish a perfect evaluation system, and select appropriate assessment methods
Appropriate evaluation methods usually include tow systems: One is the basic system which includes financial analysis, industry analysis, operating conditions analysis. Analysis of the financial system contribute to the understanding of the financial situation between the two sides, Industry analysis system, can make the bidder understand the external environment, as well as the status of industry trends. Through the analysis of operating conditions can understand the existing problems the operation, and provide the basis for integration. On this basis, enterprises can avoid this risk. Second is the evaluation system. There are many methods of the evaluation system, just as book value, market value, liquidation value, discounted cash flow and so on. Different valuation methods will lead to different price, so firms should select a better method in accordance with their own motive. 2.3 Flexible choice of payment methods
Reasonable arrangements for the payment method and financial cost reducing are related to the payment method in which cash payment face the most pressure. M & A business can combine their own available resources, diluted earnings per share and stock price volatility, changes in the shareholding structure in order to make their payment as combinations of cash, debt and stock, so that it can meet the need between two sides. For example, M&A takes two-tier payment method, for the first, adopt cash method while mixed method is used when the second step. This payment, on the one hand, because of the size of the transaction, the buyer paid cash consideration of a limited capacity, should maintain a more reasonable capital structure to reduce the enormous pressure on the loan, on the other hand, bidder can induce shareholders of target firm to make sell decision as soon as possible, and then they can reach the goal of obtaining control of the business. 2.4 To strengthen the post-merger integration
2.4.1 Strengthening financial control, financial integration of human resources, financial institutions and functions of the organization
For example, mergers and acquisitions business was to appoint Chief Financial Officer, Chief Financial Officer has clear responsibility and authority, they play the organization and monitoring role on the M & A business from day-to-day financial
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