A Study Of Financial Support And M&A Capability Based On Corporate Life Cycle

Financial support is indispensable to the development and prosperity of M&A market.The M&A market in China keeps growing assisted by ever-increasing financial innovation in recent years.The total value of M&A transactions in China,indicated by macroeconomic data,has soared to RMB 4.76 trillion yuan in 2020,up by 30% from2019 and for about 15% of global market share,which reaches the highest level since2016.Finance has played an increasingly important role in the development of M&A market.The microscopic practice indicates flourishing PE investment,M&A funds and investment banking consultancy have promoted enormously value creation of corporate M&A in developed countries.In contrast,the M&A market in China still lags behind developed markets in terms of its overall scale,professionalism and vitality judging from deals and practice.Innovative financial instruments,such as M&A fund,equity investment,combined debt-equity investments and investment banking consultancy,remain minority market players in China,which has restricted those instruments from playing an effective role in M&A transactions.China is at the stage of transformation from old to new growth paths,which gives rise to reconstruction of the existing industrial chain,supply chain and value chain.Under this background,it is of positive significance to study the underlying differences between China and developed countries’ M&A market development,so as to identify ways to promote the prosperity of M&A market and enhance China’s M&A capability.Those efforts help optimize China’s economic structure adjustment,industrial evolution and industry competition,and realize the circular added-value between finance and real economy as well as between capital and enterprise operation.On one hand,financial support,as an external force to promote M&A,changes the internal growth characteristics including M&A capability.On the other hand,the range,depth and appropriateness of financial support do matter the success of M&A.Life cycle,as a direct manifestation of enterprise growth,also directly and indirectly affects the enterprise’s M&A capability.These in-depth topics worthy of discussion contain the law of the internal relationship between M&A capability and financial support,differences in M&A capability of enterprises in different life cycle stages,and more effective financial support strategies to be adopted to improve M&A capability under the static function and dynamic evolution of life cycle.The research on M&A and financial support by academic communities at home and abroad mainly focuses on innovation of financial instruments,demand of financial services and the status quo of regional financial development.Though the abundant research literature is generally consistent in conclusions,there remains room for further research on how to measure the M&A capability of enterprises,whether financial support can alleviate capability constraints and what strategies should be adopted to support M&A.Domestic academic research on China’s financial support for M&A mainly focuses on financing service cases,innovation of financing products,reform of financial institutions,etc.,primarily on M&A deals and financial practice.While theoretical,continuous and systematic research remains insufficient,it calls for further logical understanding of M&A capability and financial support strategy of enterprises.In this view,the paper,based on the existing research on life cycle and M&A,makes deep analysis of the changing law of M&A capability concerning enterprises in different life cycles,as well as the effect that reasonable financial support empowering M&A,thus making further exploration of specific strategies of financial support for M&A.This paper follows the logic frame of "life cycle-corporate M&A-financial supportM&A capability" by adopting and integrating the methods of case analysis and comparison,theoretical construction,large sample demonstration,etc.Firstly,this paper selects the cases of financial support for M&A in China and the United States,as well as the M&A cases launched by the enterprises with different life cycles and supported by a large domestic commercial bank.It makes a comparative study based on different financial development stages and different life cycle perspectives.The author establishes the changing logic of empowering effect of financial support on corporate M&A alongside with changing financial development and different corporate life cycle.Secondly,based on the analysis and life cycle identification of M&A capability,a theoretical model of M&A capability based on life cycle is constructed,and the financial support mechanism is introduced,and then the hypothesis is put forward that "financial support enables M&A capability to be improved" and "the M&A empowerment function of financial support is relatively significant in the growth period and recession period,but relatively weak in the mature period".Thirdly,M&A data of domestic listed companies from 2007 to 2020 are selected as the empirical research object,and the companies are divided into three categories: growth period,maturity period and recession period.The data envelopment analysis method is used to measure the M&A capability of enterprises,and based on the measurements of M&A capability,a model is established to test the effectiveness of the measurements of M&A capability.Fourthly,by using the panel data of listed companies,the relationship between M&A capability and financial support is further empirically analyzed.Fifthly,the paper summarizes the financial support methods to improve the M&A financing ability,trading ability and comprehensive ability,and it proposes the static financial support strategies under different life cycles and the dynamic financial support strategies under life cycle migration.The main conclusions of this paper are as follow:(1)Case analysis and comparative study show that financial support has different empowering effects on corporate M&A at different financial levels.Financial support for M&A increases alongside with financial progress.Financial support has played a positive role in the process of M&A in respective life cycles.However,enterprises in start-up period and recession period are more dependent on M&A financial support,and they are also in need of more difficult innovation of M&A financial services,which results in more obvious empowerment effects.In contrast,mature enterprises have rich financial resources and good financing environment for M&A.With relatively convenient M&A financial services,those enterprises have relatively weak dependence on M&A financial support.(2)Theoretical research shows that enterprises are faced with the difference of M&A capability in implementation of M&A,and the degree of difference in M&A capability changes with the different life cycles of enterprises.Financial support can effectively alleviate the lack of M&A ability of enterprises by improving the financing ability,trading ability and comprehensive ability of M&A,and the improvement effects vary with the life cycles of enterprises.(3)Empirical research shows that the M&A capability of an enterprise change dynamically with its different life cycles.The M&A capability of an enterprise are gradually accumulated from growth to maturity stage,while they are gradually weakened from maturity to recession stage.M&A financial support can significantly improve the M&A capability of enterprises,but the effects of improvement vary for different life cycles.The M&A ability of enterprises in growth period and recession period is relatively greater,while that of mature period is relatively smaller.(4)Different strategies are proposed to enhance the M&A capability of enterprises according to their pivotal demand.Equity financing services should be designed primarily for start-ups and standardized debt financing services for growth enterprises.Combined debt-equity investments could be tailored for mature enterprises while "advisory support + financing support" should be provided to those enterprises at recession."Financing Consultancy+ Debt Financing+Equity Investment" strategies are suitable for enterprises with close interaction between life cycle and M&A."Financial consultancy + financing consultancy + M&A fund" strategy is more appropriate to support corporate clients with upward life cycle to carry out M&A,while "transaction consultancy+financing consultancy+equity investment" strategy is considered to be better financial support for enterprises with downward life cycle.This paper has made innovations and contributions in four aspects:(1)This paper deconstructs the conceptual connotation and measurement method of M&A capability,proposes that M&A capability will change with the evolution of the life cycle,proposes an effective method for M&A capability measurement and conducts an empirical test.(2)The relationship between M&A capability and financial support is theoretically analyzed from the perspective of life cycle,and the following conclusions are fully tested: Financial support can empower M&A and significantly enhance the M&A capability of enterprises.The M&A characteristics,financing constraints and financial needs of enterprises in different life cycles vary,and the effects of financial support are also different,which are reflected in an "inverted U shape" in which the effects decrease from growth to maturity and increase from maturity to recession.(3)Case studies,theoretical and empirical studies have generated a series of conclusions about M&A capability and financial support.It is concluded that there are differences in M&A capability among enterprises in the process of M&A,and those differences change alongside with the change of life cycle.Financial support,as a way of empowerment,can make up the deficiency of enterprises’ ability of M&A.When the financial support strategy is adaptive to the life cycle characteristics of an enterprise,it helps improve the ability of M&A.(4)This paper proposes financial support strategies for enterprises in different life cycles to implement M&A,based on the conclusions of case,theory and empirical research,and combined with the latest practice of commercial banks in supporting M&A of enterprises in various life cycles.