Analysis On The Financial Risk And Control Effect Of Transnational Leveraged M&A

With the deepening globalisation of the world economy,the domestic economic transformation is in a new situation,and cross-border mergers and acquisitions has been a key strategy for companies to expand and develop rapidly.Along with the implementation of the globalisation strategy,the wave of overseas acquisitions in China will continue.The advantages brought by cross-border M&A,such as expanding markets,acquiring resources and enhancing production capacity,have the great meaning to our country economic development.However,the large amount of capital involved in cross-border M&A has led to some companies failing to achieve effective M&A results after acquisition due to factors such as cultural differences or poor integration,resulting in a significant loss of manpower,financial resources and time.Financial issues are a fundamental factor in the failure of an M&A,with many companies failing to achieve the expected returns due to a broken capital chain,making it difficult to achieve the objectives of the M&A.Financial activities play a key role in the whole process of M&A.Therefore,in order to ensure the success of M&A and achieve synergies,companies must conduct comprehensive evaluation and control of financial risks.The fast growth of the new energy vehicle industry has increased the demand for lithium resources,and the exploitation of lithium resources is an important part of the lithium industry value chain,thus high quality raw materials are a prerequisite for sustainable business development.Tianqi Lithium is the world’s largest and leading producer of lithium batteries and is mainly engaged in the development of lithium resources and processing of lithium products.After acquiring a number of lithium mines through the acquisition of Teleson and achieving high returns,Tianqi Lithium began to advance its plans for a cross-border leveraged acquisition of SQM.However,Tianqi Lithium has incurred more financial risks following the acquisition of SQM,which has created some headwinds for its development.Hence,Tianqi Lithium,which had hoped to expand its production,began to face a shortage of funds.After the failure of the H-share listing,Tianqi Lithium planned to fundamentally alleviate this financial crisis through risk management measures such as the introduction of foreign investors and the sale of a 50% stake in Telesun.In this paper,case study method,literature research method and normative research method are mainly used to study the financial risks and control effects of transnational leveraged mergers and acquisitions with Tianqi Lithium as an example.Firstly,it introduces the background and significance of the study,the methodology and content,and summarises the core concepts using the literature analysis method,defining the concepts of leveraged buyout,cross-border M&A and financial risk,and sorting out the relevant literature studies on the causes,identification and analysis of the financial risks arising from M&A,financial risk control measures and their effects.The theoretical basis and the current situation involved in this paper are also analysed.Next,the paper analyzes the background and financial risk of the cross-border M&A case of Tianqi Lithium.The reasons for the selection of the case and the profiles of the two parties are introduced,and procedures and funding modalities for the cross-border M&A of SQM by Tianqi Lithium are sorted out.It then analyses the valuation,financing and payment risks arising from the cross-border M&A.Then,the financial risk control measures of Tianqi Lithium’s cross-border acquisition of SQM are reviewed and their effectiveness is evaluated.The paper analyse the overall effectiveness of Tianqi Lithium’s financial risk management from three perspectives: market performance evaluation,financial performance evaluation and non-financial performance evaluation.Finally,the conclusions and recommendations of the case are summarised.The practical insights are that firstly,resource allocation can be optimised to cope with liquidity risk,secondly,strategic investors can be brought in to mitigate financial risk,and finally,attention should be paid to planning ahead for deleveraging strategies.The expected contribution of this paper is to categorise the financial risks caused by Chinese companies’ cross-border leveraged mergers and acquisitions,to provide a detailed analysis of the efficacy of these financial risk management measures,with a view to identifying the risks that exist in the cross-border leveraged mergers and acquisitions activities of Chinese companies,as well as making relevant risk control recommendations.