Study On Risk Prevention In Betting On Mergers And Acquisitions

As China’s economy enters a new normal of development,the pace of renewal in various industries has accelerated.In order to cope with the complex market competition environment,enterprises have chosen to achieve development and growth through M&A transactions.However,most companies do not achieve satisfactory business results after the implementation of M&A transactions.In order to mitigate the M&A risks caused by the information asymmetry between the two parties.China’s capital market has started to actively introduce the betting agreement.As a valuation adjustment mechanism,the betting agreement can,in theory,effectively protect the interests of both parties and promote the smooth implementation of M&A transactions.However,in the practical application of the betting agreement,betting phenomena such as high valuation,high commitment and high goodwill have emerged,and betting disputes such as performance failure,performance manipulation,inability to compensate and refusal to compensate have occurred frequently,causing significant losses to both parties of M&A and leading to the failure of M&A transactions.The existing literature on M&A risk mostly focuses on the M&A itself,and there is less research on the risk brought by the betting agreement.In this paper,we study the risks of M&A from the perspective of the betting agreement,focusing on the following questions:What are the risks brought about by the betting agreement in the process of M&A?What are the consequences of betting failure?How to prevent the M&A risks brought about by the betting agreement?In this paper,we analyze the risks before,during and after the acquisition,the negligence of KBC in risk management during the whole acquisition process,and the huge impact on KBC after the betting failure,by selecting a case in which KBC lost control of its subsidiary due to the betting failure.In this case,the M&A party,Kehua Bio,entered into an open-ended "uncapped" investment agreement in order to increase the reasonableness of the M&A valuation and to motivate the management of the M&A party to improve its business performance,and then the factor company’s performance soared and the transaction consideration rose to tens of billions of dollars,which Kehua Bio was unable to pay and caused its subsidiaries to lose control.The study found that the risk brought by the betting agreement was throughout the whole process of M&A,and that KOB had negligent risk control before,during and after the M&A.The failure of the betting led to the loss of control of the subsidiary,which had a huge negative impact on the market response and production operation of the company.The theoretical significance of this paper lies in the fact that the introduction of betting agreements in China is relatively late,and there is a lack of relevant research.The existing literature mainly focuses on the motivation and implementation effect of betting agreements,and this paper hopes to enrich the relevant research from the perspective of the M&A risks caused by betting agreements.The practical significance of this paper is that it helps listed companies to identify the betting risks in M&A,hoping to improve the effectiveness and reasonableness of the use of betting agreements in M&A,and to provide some reference and reference on how listed companies can avoid stepping on the mines of acquisition and complete the acquisition successfully.