A Study On The Failure And Risks Of Gambling Agreements In Cross-border Mergers And Acquisitions

In recent years,with the steady development of China’s economy,coupled with the drive of industrial policies,many companies have adopted M&A to expand their business scale,enhance their competitive advantages and achieve diversified development.However,the attendant M&A risks,especially the premium risk,remain high.Against this background,the gambling agreement,a valuation adjustment mechanism,has come into being.The gambling agreement can compensate for the loss of over-valuation of the M&A party through the agreed compensation clause,and also motivate the management of the subject company to achieve the expected performance.However,the failure rate of gambling agreements in M&A restructuring of listed companies in China is as high as 50% or more,and the failure rate is even higher in cross-border M&A.The continuous emergence of M&A disputes such as performance default,performance denial,inability to compensate,and refusal to compensate remind investors of the inherent risks of the gambling agreement as a tool.Studying the application,causes of failure,and risk points embedded in the gambling agreements of companies in M&A restructuring and how to deal with these risks will help companies to truly play the role of gambling agreements,improve the success rate of gambling agreement implementation and protect their own interests in the M&A process.This paper compares the current academic research on the gambling agreement,takes the causes and risks of the failure of the gambling agreement as the entry point,selects the case of the cross-border merger and acquisition of Jiangnan Integration by Hailu Heavy Industries,analyzes the application of the gambling agreement through the case study method,uses the comparative analysis method and the event study method to analyze the changes in financial performance and stock market performance caused by the failure of the gambling agreement,analyzes the causes of the failure of the gambling agreement that caused the above impact,and identifies the risk points from the three stages of preparation,formulation and implementation of the gambling agreement,and then proposes risk response suggestions.The research results show that insensitivity to the industry policy trend of the subject company,inadequate due diligence,inflated valuation amount,and inadequate integration after cross-border M&A are the main reasons for the failure of the gambling agreement in Hailu Heavy Industry case.Thus,this paper extracts the industrial policy and industry competition risk,due diligence risk,valuation and goodwill impairment risk,management behavior and integration risk in this case,especially focusing on the industry policy risk specific to cross-border M&A.On this basis,this paper suggests that companies should strengthen their control over the macro market status of the target companies,especially cross-border M&A,enrich performance evaluation indicators,make reasonable valuation,design gambling terms scientifically without relying too much on gambling,and understand the business and profit model of the target companies to avoid the risk of M&A failure.