Research On Performance Commitment Risk And Prevention In Cross-Industry M&A

However,with the expiration of a large number of performance commitment agreements,their flaws are gradually exposed,and incidents such as parents and subsidiaries going to court,subsidiaries refusing to cooperate with audits,etc.occur frequently,and parent companies losing control over subsidiaries,and eventually mergers and acquisitions have ultimately ended in failure,and the "high level of commitment and low level of compliance" with corporate performance commitments has caused widespread concern in the market.At the same time,in cross-industry M&A,the M&A parties are mostly traditional industry enterprises,which often choose emerging industry as the subject party,and the degree of asymmetry in the information provided by the merging and acquiring parties is greater compared to mergers in the same sector and the promise of results is more widely applied and the phenomenon of high promise and low performance is more evident.This paper takes as an example the acquisition of Boya Stem Cell by Xinri Hengli,from the perspective of the acquirer Xinri Hengli,we provide an in-depth analysis of the performance risks associated with cross-industry M&A in the three periods before and after the event,and propose corresponding countermeasures.It is found that in the pre-promise period,there are risks of overvaluation of the subject assets,risks of setting terms,risks of unreasonable performance target setting and risks of subject selection;in the promise period,there are risks of resource integration and risks of surplus management;in the post-promise period,there are risks of goodwill impairment and risks of performance compensation and litigation,etc.This paper argues that the most important causal factors of performance commitment risk in cross-border M&A are information asymmetry and failure to conduct due diligence.In view of the above risks,the following recommendations are made in this paper.Xinri Hengli should fully investigate the industry and market development trend in which Boya Stem Cell is located and do a good due diligence;at the same time,choose an appropriate valuation method,reasonably expect the future operation and set a reasonable performance target value.Secondly,set a reasonable performance commitment target and improve the payment methods,such as profitability payment plan,etc.Finally,make reasonable strategic adjustment,strengthen internal resource integration and clarify the control.Meanwhile some irregularities of performance commitment need to be regulated by relevant authorities and legal level.The innovation of this work is not only to systematically identify and analyse risks in the entire performance commitment process,but also to analyse risks in cross-sectoral mergers and acquisitions from the perspective of performance commitment and to propose corresponding measures,thus enriching existing research findings.