The Research On M&A Financial Risk Evaluation Based On The Industry Life Cycle

Merger and acquisition (M&A), which emerged as the market economy developed to a certain phase, has been an extremely important way of property trading in modern economic life. According to the statistics from Dealogic, the total amount of global M&A trading reached 3.87 trillion USD in 2006, which set a new record for annual global enterprise M&A scale. However, there are also quite a few failed cases with the recent surge of M&A, most of which have resulted from financial risks. In spite of so many research theories regarding financial risks of enterprise M&A, several elements are still ignored, and one of them is the industry life cycle (ILC) of the enterprises concerned, which is vital for M&A financial risk evaluation.On the basis of summarizing the M&A financial risk research both domestic and abroad, this essay points out the drawbacks of current research, including the one of ignoring the ILC of the enterprises involved. By first studying the ILC's importance and necessity for evaluating financial risks, the theory of ILC is then introduced into the evaluation system of financial risks. Based on the ILC theory the essay analyzes phase traits of ILC and thus put forward the financial characters with impact on M&A financial risks. The essay also expatiates the partitioning of most domestic ILCs, which helps to study the traditional M&A financial risk evaluation models (i.e. models unmodified by ILC). One major theoretical innovation in this essay is the designing of the ILC-revised M&A financial risk evaluation model and the research over the matrix of ILC revising degree, which is carried out by using the AHP-Fuzzy tool. To test the validity of the ILC-revised model, this essay chooses to study the case of BENQ's acquiring of Simens Mobile Department. It respectively utilizes the traditional model and the ILC-revised one to evaluate the acquisition's financial risk, and the methods of experts'marking and level analysis are adopted to work out the comprehensive revising degree matrix of a growing ILC. After comparing the two evaluation results, it finds that to some degree the traditional model underestimates this acquisition's pricing and financing risks in contrast with the ILC-revised one, proving the latter's validity and applicability.This essay endeavors to improve on the validity and effectiveness of M&A financial-risk-evaluations, and to enrich and substantiate current M&A financial risk evaluation theories, thus helping guide future enterprise M&As and enhance M&A efficiency.