The M&A Performance Evaluation Of China Pingan Acquisition Of Shenzhen Development Bank Based On The DEA Method

As a kind of resource allocation and reallocation process, Mergers&Acquisitions (M&A) are very important way to acquire strategic growth of companys. The management mode of "integrated operation" has become the the overall trend in the global financial industry. The acquisition case of China Pingan acquiring Shenzhen Development Bank is the most famous and typical "integrated operation" in China’s financial industry. Because the management mode of "integrated operation" is still fresh in China, this case is very representative and important for acquiring more experience for the financial industry. Financial performances of the two companys before and after the acquisition are carefully investigated and compared. Acquired data and research results are respected to provide great support for future M&A activities and the development of China’s financial industry.Compared to the "event method","financial comparation method" is more direct and effective for eveluating the M&A performance. The financial indicator values of the buyer and seller before and after the acquisition are selected and compared. Besides, the "case study" method is used to study the M&A performance in this paper. The case is fully studied based on this method, investigating the dynamic changes of the company financial performances. Among many calculation methods of financial performance, the DEA (Data Envelopement Analysis) method has absolute advantages in dealing with multi-input, especially multi-output problems. The principles and data models are briefly introduced in this paper. In comparision to the traditional CCR model, BCC evaluation model can cover both technical efficiency and scale efficiency evaluation and assessment under the changing returns to scale, which is applicable to this case here.The background and process of China Pingan Acquisition of Shenzhen Development Bank is briefly introduced, analyzing the synergies acquirer, motivation and expected acquisitions performance. Combined with the "financial performance evaluation approach" issued by the China’s Ministry of Finance, the acquisition performance of this case is studied from four areas, including profitability, business growth ability, asset quality and solvency indicators.Calculation results showed that, till mid-2013, technical efficiency, pure technical efficiency and scale efficiency of the "new China Pingan" profitability after acquisition did not change significantly, indicating that the overall profitability has not been essentially improved. The business growth ability of China Pingan after acquisition seems to be in the bottleneck position, and the technical efficiency, pure technical efficiency and scale efficiency values of the China Pingan in the3years after acquisition are all less than0.5. In terms of the assets quality of the new China Pingan, its technical efficiency and pure technical efficiency dropped significantly, and scale efficiency increased slightly. It is because that the liquidity of the Shenzhen Development Bank should be strenghthened during the structural integration of the two companies, causing the decrease of the assests quality. In the first years after the acquisition, the technical efficiency, pure technical efficiency and scale efficiency of China Pingan solvency ability reached to1and achieves effectived DEA. In2012and2013, a slight decline of its solvency ability occurred, but still remained stable.Post-acquisition integration decides the result of enterprise M&A. Important experiences are summarized and learned through studying this case, providing inspiration for China’s financial industry. The "integrated operation" represents the future direction of the China financial industry. The competent authorities should strengthen risk management and supervision. The supervision departments should strengthen risk management and supervision ablility while encouraging more and more M&A behaviors. With the continuous development and growth of the domestic financial industry, the market gradually replaces the government’s role and the determiner of M&A cases.Data analysis showed that, the banking business power of China Pingan has been significantly enhanced through the acquisition of Shenzhen Development Bank. It has become a comprehensive financial holding company. Its profitability, business growth, assets quality and solvency have achieved good M&A performance with stable indicator values. An effective M&A performance evaluation method has been established for the China Pingan acquisition of Shenzhen Development Bank in this paper based on the DEA method, which can be used for other "integrated operation" M&A cases in China financial industry.