Research On Goodwill Arising From Mergers & Acquisitions Between BlueFocus And Bojie Advertising

Since 2014,mergers and acquisitions activities in China’s capital market became increasingly active,with the encouragement of favorable policies promulgated by the government.After two years development in 2014 and 2015,prices of M&A activities are improving as long as the rising of valuation in the secondary market.Many valuations in recent M&A activities are much higher than the fair value of book net identifiable assets,which leading to a large amount of goodwill.The soaring amount of goodwill on the account reflects the boom of M&A activities and scene of high premium in capital market.However,more and more listed companies disclosed that the performance of company has been suffered from the depreciation of goodwill impairment loss.That indicates an alarm that the risk of impairment of goodwill is emerging.The large amount of goodwill arising from M&A activities is gradually adding uncertainty to the future performance of listed companies.Therefore,it is a problem faced by a lots of acquirers that how to lower the degree of negative impact caused by the depreciation of goodwill after the M&A.Based on the view of goodwill,this paper studies the factors that influence th e purchased goodwill,with the reference of related theories on the nature of goodwill,purchased goodwill and internally generated goodwill.This paper mainly uses the case analysis method and financial data used in this paper mostly collected from Wind database and annual reports of listed companies.The case study deeply analyzed the case of merger between Blue Focus and Bojie Advertising.The analysis contains three aspects,including factors that influence the formation of merger goodwill in this case,sources of goodwill impairment risks and the effect of large amount of goodwill impairment loss occurred.The study finds: 1.Industry characteristics with light-asset strategy,the adoption of income capitalization approach in evaluation on enterprises and the application of complicated performance commitment in M&A will increase the amount of merger goodwill.2.The sources of goodwill impairment risk mainly come from the operation of Bojie Advertising,including the business content,the sustainability of main operation resources,the management approach used after the M&A and the performance of Bojie Advertising after joining the Blue Focus.3.Under the present financial situation of Blue Focus,the earnings per share,net income and other financial index may be exposed to the risk of goodwill impairment.If large amount of goodwill impairment loss occurs,the earnings per share,net income and other financial index may decrease.Therefore,the corporate performance is involved by the large goodwill impairment loss.Through the analysis on this case,the writer proposes several suggestions on how to reduce the negative influence caused by goodwill impairment: 1.The supervisor should pay attention to the corporate performance after the M&A;2.The acquirer should strictly conduct the due diligence,design suitable performance commitment into the trade contract,improve the ability conducting M&A activities and enhance the endogenous growth capacity;3.Both side of the M&A need to improve the degree of transparency of information disclosure during the trade.