Research On The Risk Controls In The Overseas Home Furnishings Industry Mergers And Acquisitions

Recently,with the influence of some factors,for example,the increasing labor costs and appreciation of the Renminbi,etc.,the domestic home furnishings with extensive production style could not meet the development needs.And with the increasing competition in this field,some powerful players are turning their attention to the overseas market by means of M&As,intended to upgrade industry or improve technology and make industry layout and assets allocation worldwide.However,accompanied by many kinds of risks and challenges during an M&A transaction,such as different market environments,cultural backgrounds and legal systems etc.,different strategies should be adopted to avoid the risks in the process of overseas investment in the home furnishings industry.Therefore,it’s crucial to identify and control different risks during the process of overseas home furnishings investment.Firstly,based on reviews of the research literatures,this paper compares the recent development of domestic and overseas home furnishings industry and introduces some characteristics exhibited by the two markets.It also,in theory,enumerates potential risks,including political risks,legal risks,financial risks,and integration risks which a company might encounter during its overseas investment process.In addition,from the perspective of risk management,based on the real case of L Holding,Inc.acquisition by the fund under Yixing Capital’s management,this paper will analyze on various stages of the investment process.The study finds that,(1)There are major risks encountered in decision-making: improper selection of M&A targets,domestic economic slowdown and international market expansion risk.(2)There are many risks during transaction period,including financial risks,tax liability risks,sustainable risks in the cooperation between distributors and suppliers and top management turnovers risks.(3)The effective way to avoid financial risks is in-depth due diligence.The work of due diligence covers the survey of potential financial and tax liability risks,employment of law firms and accounting firms with high reputation,reasonable evaluation for acquired enterprises,option incentive plan for management team.(4)The risks encountered during the post-investment period include post-investment synergistic risk and Chinese market expansion risks that acquired enterprises would face.It’s found that good post-investment management is very crucial for overseas home furnishings industry.