Research On Financial Risk Of Leveraged M&A

Since the 21 st century,China has further carried out reform and opening up,the market system has been further improved,all walks of life have achieved unprecedented growth.In the process of continuous expansion of enterprises,leveraged mergers and acquisitions are becoming more and more popular.In the past year of 2021,there were 7,662 leveraged mergers and acquisitions,with a total amount of 1.32015 billion yuan.Leveraged MERGERS and acquisitions have become an effective means for enterprises to expand,expand markets and improve their industry status.At the same time,China has put forward the strategic concept of "One Belt and One Road",which provides policy support for Chinese enterprises’ cross-border mergers and acquisitions.The boom of Chinese enterprises’ cross-border mergers and acquisitions is unstoppable.In addition,in the lithium resource industry,China’s14th Five-Year Plan has clearly proposed support for the new energy industry.In the future,China will strive to achieve electric vehicle goals and internationally required carbon emissions,which will also bring new growth points to the new energy vehicle industry.As early as 2017,China issued the guidance catalogue of key products and services of emerging industries to support lithium battery materials in the lithium resource industry,such as lithium manganese acid,lithium iron phosphate and other materials,in order to better guide local governments to carry out support work.In this context,Tianqi Lithium acquired SQM company to lay out the upstream position of lithium industry,which will help China to develop faster and better in the future and form the power battery industry.However,according to data,the probability of merger failure is as high as 40 percent.The failure of M&A mainly focuses on the importance and response of M&A risk.Therefore,by sorting out and summarizing the existing merger and acquisition theories,and focusing on the risk causes and preventive measures of enterprise merger and acquisition,the author expects to give reasonable suggestions on the risks of enterprise merger and acquisition,and provide relevant references for future leveraged merger and acquisition enterprises.In this thesis,starting from the theory,the status quo of domestic and foreign M&A research is sorted out,including the sources of capital and risk of leveraged M&A.Then,related theories of M&A are expounded,such as capital structure theory,sequential financing theory and synergistic effect of acquisition.Secondly,the case of Tianqi Lithium’s acquisition of SQM company is introduced,mainly from the development of lithium resource industry,policy environment,market environment,business status of both parties and the process of the acquisition.Finally,risk analysis of financial indexes and non-financial indexes was conducted for Tianqi Lithium merger,including valuation risk analysis,financing risk analysis,payment risk analysis and debt repayment risk analysis.In the process of financial index analysis,relevant data of Tianqi Lithium’s financial statements from 2016 to 2020 are selected for analysis,and financial index analysis of the industry is added to strive for objective analysis from different angles,in order to dig out the financial risks Tianqi Lithium needs to face in the merger and acquisition.It is concluded that in the year of M&A,the asset-liability ratio of enterprises will surge,the operating cash flow will tighten,and they will face the risk of bankruptcy.In order to avoid the risk of appeal,the author believes that enterprises need to stabilize sales,update technology,reduce financial costs and mining costs to increase their profitability,and at the same time,strengthen the flow management of accounts receivable and inventory,optimize financing channels and diversify financing means.At the same time,it is necessary to reduce asset-liability ratio,speed up merger and acquisition integration,conduct multi-angle and multi-dimensional valuation,reduce asset impairment risk,establish scientific exchange rate risk control mechanism,scientifically select financing currency,diversify payment methods and arrange payment time reasonably.