Financial Risks And Prevention Of Private Enterprises In Overseas Leveraged Acquisitions

Since 2015,the overseas acquisition of Chinese enterprises has developed spurt,especially among private enterprises.In overseas acquisition transactions,private enterprises often choose to use cross-border acquisitions for cross-border acquisitions.However,this kind of transaction model has large financial risks for all private enterprises that start late and develop short-term development..How to effectively avoid these risks has become a problem that Chinese private enterprises have to face in overseas leveraged buyouts,and it is also a topic that Chinese academic circles often discuss and exchange.Therefore,the focus of this paper is to analyze the financial risks of private enterprises in overseas leveraged buyouts and propose corresponding preventive measures.In this paper,using the case study method,Shanshan Wang Food Co.,Ltd.was selected to acquire Canadian health products company kerr as the case study object.Firstly,based on the research results of predecessors,through the analysis of relevant literature,the main financial risks in private leveraged overseas acquisitions are classified into valuation risk,financing risk,payment risk and debt repayment risk according to the sequence of event development.In the early stage of the acquisition,the financial risks mainly focused on the valuation of the underlying company's assets and the acquisition side's financing of the acquisition;in the acquisition process,the financial risks are mainly hidden in the choice of payment methods;in the later stage of the acquisition,the previous collection The huge debt repayment pressure triggered by the funds can also cause financial risks.In order to ensure the smooth progress of overseas acquisitions,Xiwang Food has taken a series of measures to prevent potential financial risks: to prevent valuation risks by hiring professional evaluation agencies and adopting “or contingent payment” equity delivery arrangements;Financing,“listed company + PE” and private placement to solve financing risks;adopting internal insurance and external loans to avoid the risk of payment of funds to the sea and exchange rate fluctuations;finally,through debt swaps and issuance of private convertible bonds to ease debt repayment risk.However,through the analysis of the financial indicators related to Xiwang Food,this paper finds that the data after the acquisition is not the same as the industry average before the acquisition,and the follow-up equity transfer process is not implemented according to the original signed agreement.Both indicate that the feedback from the acquisition transaction is not satisfactory,and the financial risk prevention measures adopted by Xiwang Food may have certain defects.By comparing with the successful cases of cross-border leveraged buyouts in developed countries,this paper believes that the financial risks in the process of overseas leveraged buyouts of private enterprises in China are mainly due to the fact that payment methods are too dependent on cash payments.Therefore,this paper suggests that private enterprises should first consider the trading mechanism of stock payment in overseas leveraged buyouts.Compared with cash payment,this mechanism does not need to carry out debt financing,and can effectively reduce the valuation risk and solve the problem of funds going out to sea.Of course,the stock payment mechanism is not perfect,and its short-term approval time and relative loss of the transferor's interests will hinder the acquisition.In this case,as a supplement to the full stock payment,the "stock + cash" payment method can be used as the whole cash and A compromise between the two types of payment methods.