Research On The Risks And Measures Of Performance Commitment In Cross-industry M&A

In 2008,the China Securities Regulatory Commission issued the "Administrative Measures for the Reorganization of Major Assets of Listed Companies" to force both parties to sign performance commitments,and performance commitments began to be used in the field of mergers and acquisitions.In 2014,although the China Securities Regulatory Commission abolished the mandatory performance commitment regulations,performance commitments as a protection mechanism are still widely used in the field of mergers and acquisitions.As the M&A boom faded in 2015,a large number of performance commitment agreements have expired in the past two years.The phenomenon of “high commitment and low fulfillment” of performance commitments has attracted widespread market attention,and the defects of performance commitments have gradually been exposed.In cross-industry mergers and acquisitions,the parties to the merger are mostly traditional industry companies.During mergers and acquisitions,light-asset companies such as pharmaceuticals and film and television are often selected as target companies.The degree of information asymmetry between the mergers and acquisitions is higher than that of mergers in the same industry,and the application of performance promises is more extensive,The phenomenon of high commitment and low fulfillment is even more obvious.This article takes Baihuacun's acquisition of Warwick Pharmaceuticals as a case,deeply analyzes the risks of performance commitments in cross-industry mergers and acquisitions,and proposes corresponding countermeasures against the risks found.The study found that before the implementation of the performance promise,the performance promise has the risk of boosting the value of the target asset and the unreasonable risk of the performance goal setting;during the performance promise period,the performance promise has the risk of earnings management and the risk of major shareholders' benefit transmission;In the performance compensation stage,there is a risk that performance compensation is difficult to compensate for the loss of goodwill impairment and the implementation of performance compensation is difficult.In response to the above risks,this article puts forward the following suggestions: In the preparation stage of performance commitment,Baihuacun should fully investigate the industry and market in which Warwick Pharmaceuticals is located,and focus on avoiding policy risks;at the same time,combining its industry and market environment,reasonably anticipate future operations Circumstances,a reasonable valuation of the underlying assets.In the performance commitment formulation stage,you can set reasonable performance commitment targets,implement two-way gambling,add non-financial evaluation indicators,and use repeated game mechanisms to scientifically set performance commitments.You can also use foreign profitability payment plans for instalment payments and join at the same time.The guarantee system and the recovery system prevent the failure of performance compensation.In the implementation stage of performance promises,Baihuacun must attach importance to mergers and acquisitions integration and establish a scientific internal integration system.At the same time,the supervisory department must strengthen the supervision of performance promises and regulate the irregular behavior of performance promises from the legal level.The innovations of this article are as follows:(1)The research perspective is novel.Performance commitments are widely used in cross-industry mergers and acquisitions.However,there is little research on the performance commitment of cross-industry M&A.This article analyzes the risks in cross-industry M&A from the perspective of performance commitment and proposes corresponding countermeasures,which enriches the existing research results.(2)The case study objects are typical.This article selects the case of crossindustry mergers and acquisitions in the pharmaceutical industry by coal industry companies,which fully reflects the characteristics of cross-industry mergers and acquisitions;at the same time,in the performance promise implementation process in this case,the acquired party did not fulfill the performance promise during the entire performance promise period,and the business situation deteriorated This led to huge losses for the acquirer during the performance commitment period,which also reflected some problems caused by many cross-industry M&A companies blindly signing performance commitments.From the above two aspects,the case selection is typical.Based on specific cases and theoretical knowledge,this article analyzes the risks of performance commitments in cross-industry mergers and acquisitions and proposes corresponding countermeasures.It can provide evidence of problems in cross-industry mergers and acquisitions,and warn companies to use them scientifically in the signing and implementation of performance promises.Performance commitments,to reduce the occurrence of "high performance commitments,high valuations,high premiums,and low fulfillment";to help investors identify possible problems and risks in performance commitments;to help regulators discover the actual applications of performance commitments Loopholes,improve the performance commitment system.It provides practical reference for the use of performance promises in cross-industry mergers and acquisitions in my country,which has practical guiding significance and application value.