Research On Financial Risk Assessment System Of Chinese Private Enterprises In Overseas M&A

Private enterprises in China have made considerable progresses since the eighties oflast century. What is more, since the beginning of the twenty-first century, the privateenterprises tend for standardization and specialization,many of which adopt joint-stockforms. There have been a large number of medium-sized private enterprises which arehighly competitive in the domestic market. Many private enterprises even expand theirbusiness abroad and engage in foreign direct investment business. After the financial crisisin2008, many well-known Western companies in western courntries dropped in financialdifficulties, which gives Chinese enterprises a rare opportunity for "going out" strategy.There have been great increases in both size and number of mergers and acquisitionsoverseas of Chinese enterprises, which forms a new wave of M&A overseas. Whileprivate enterprises in China have gradually become an important new force of those whichengage in mergers and acquisitions overseas. Compared to, private enterprises in Chinaperform their own particularity in mergers and acquisitions overseas. Although there havebeen rapid increase in both number and size in private enterprises in China in mergers andacquisitions overseas, but still in its infancy. The purpose of M&A overseas is mainlyobtaining the well-known brand and the advancing technology of the foreign enterprises,which is quite different from the medium-sized state-owned enterprises that aim to get theresources and market in and acquisitions overseas. China’s have a short history and therelative shortage of capital accumulation.The trade credit is also relatively limited.Therefore, the private enterprises prefer to use diverse financial instruments. in the processof mergers and acquisition.The risks in mergers and acquisitions overseas of China’s private enterprises includepolitical risk, operational risk, cultural risk and financial risk. These risks are closelyrelated. Financial risk can represent the value of the other risks and the other risks can alsoaffect the fanancial risk. The financial risks can be divided into four parts by the source ofrisk: pricing risk, capital financing risk, debt risk and financial integration risk. These fourparts affects each other and represent the whole risk in the mergers and acquisitionsoverseas.The basis of the assessment system of financial risk is to establish a scientific andrational evaluation index system. And the quality of the evaluation indexes directlydetermine the accuracy and effectiveness of the evaluation results. On the basis of others’research on financial risk in mergers and acquisitions of China’s private enterprises, four indicators were analyzed and identified in the assessment system according to theparticularity of China’s private enterprises. Financial integration risk keeps the mostimportant pace in financial risks in mergers and acquisitions overseas of private enterprises.It becomes the most urgent tast how to achieve effective integration of China’s privateenterprises and foreign well-known enterprises. While the pricing risk, capitai financingrisk are well controled due to the introduction of international investment and advisorybody.The fuzzy comprehensive evaluation method and the hierarchy analytic processmethod are combined in this paper in order to build assessment system of financial risk inM&A overseas of China’s private enterprises. The membership matrix of risk indicatorswere determined by expert scoring method in the classic case of Volvo and Geelyacquisition in this paper, and then the fuzzy vector sets of financial risk werecacaulated in the acquisition of Volvo and Geely. Overall, the financial risk in theacquisition of Geely and Volvo is between low risk and general risk. Based on themaximum membership degree principle, the financial integration risk of Geely is betweengeneral risk and high risk,which is mainly due to the wide gap between Geely and Volvoingcluding the technical level, size, level of development, and corporate culture etc. Thereare still many difficulties in order to achieve real integration.The pricing risk of Geely ismainly at a low level. That is because Geely employed Goldman Sachs, Deloitte and otherinternational professional bodies for consulting services, which compsed a high-qualityteam and demonstrated a good professional quality and dedication in this acquisition. Thecapitai financial risk of Geely is mainly at a low level. The introduction of internationalinvestment banks and private equity fund enabled Geely raise a lot of money in a shorttime in the international capital markets.