Research On Financial Risk Prevention In Mergers And Acquisitions Of Nonferrous Metals Industry

Since the reform and opening up, China’s nonferrous metals industry has achieved rapid development and the overall strength of the industry has been constantly enhanced. At present, the industry which has got a certain scale and competitive advantage plays an important role in national economic development, occupying a larger market share of the national economy. However, the development of China’s nonferrous metals industry is faced with many problems, such as overcapacity, high external dependency, small scale, weak strength. The "Twelfth Five-Year Plan", which is put forward in 2011, emphasized that nonferrous metal industry should further optimize the industrial layout and organization structure, improving industrial concentration. M & A is an effective way to adjust the structure of nonferrous metal industry. However, nonferrous metals enterprises in M & A activities inevitably encounter risks in mergers and acquisitions, especially the financial risk, which is a crucial factor to merger and acquisition activity. Therefore, it is very important to prevent and control the financial risk of M & A.This analysis method combined qualitative analysis and case analysis. Firstly, this paper introduced the characteristics of the nonferrous metals industry, and the current situation and characteristics of mergers and acquisitions. Secondly, this paper discusses the types and causes of financial risk of M & A and divides the acquisition of the financial risk into four categories: the risk of evaluating enterprise’s value, the risk of financing, the risk of payment and the risk of finance integration. Thirdly, this paper run quantitative analysis of the financial risk of M&A combined with A mining company takeover B company case. We can draw a conclusion that target enterprise’s pricing risk and financing risk that A company faces in the process of M&A is higher, cash payment risk and the later financial risk of integration is relatively lower. Besides, the target enterprise pricing risk for mergers and acquisitions is caused by asymmetric information and reserves risk. Moreover, single financing mode, liquidity risk and post-integration respectively lead to financing risk, cash payment risk and the later financial risk of integration. Finally, this paper put forward some feasible suggestions to prevent and control the financial risk of M & A of nonferrous metals industry, such as fully preparation before the merger, to carry out scientific and rational pricing of target enterprise, diversified financing, strengthen the management of post-integration. The suggestions aim to help nonferrous metals companies to avoid financial risk in practice, thus improving acquisition performance and achieving the purpose of the acquisition.