| The report of the "20th National Congress" of the Communist Party of China pointed out that "the next five years will be a crucial period for the beginning of the comprehensive construction of a modern socialist country,and the main goals and tasks include making new breakthroughs in high-quality economic development and significantly improving technology self-reliance and self-improvement capabilities".In order to break through the bottleneck in the process of promoting high-quality development,more and more Chinese enterprises have joined the ranks of outbound investment with the encouragement of national policies,trying to seek resources from developed countries through reverse M&A.However,Chinese enterprises are in an emerging market country.They have insufficient experience in cross-border mergers and acquisitions,and also face many problems such as increased human resource costs,higher raw material prices,and insufficient independent innovation capabilities.Although there are many cases of reverse mergers and acquisitions in China,not many have actually completed them and achieved success.Therefore,to enrich the content of the case analysis of reverse cross-border mergers and acquisitions of Chinese enterprises,so as to provide more experience for enterprises in China,this paper takes the example of Kaizhong Precision to study the incentives and performance of reverse cross-border mergers and acquisitions in China,and meanwhile analyzes and summarizes the key factors and issues that should be paid attention to in the success of reverse cross-border mergers and acquisitions of Chinese enterprises.Finally,it helps Chinese enterprises improve the success rate of reverse cross-border mergers and acquisitions.The research methodology used in this paper is a case study method.This paper combines investment factor portfolio theory with the SCP analytical model and uses it as a new research framework.Based on resource dependence theory,resource base theory,efficient market theory,and synergy theory,this article uses literature research methodology,event study method,financial analysis method and non-financial analysis method to study the case of Kaizhong Precision’s merger and acquisition of SMK in Germany.This paper provides a more comprehensive analysis of the causal factors of reverse cross-border M&As in China from a static perspective,as well as a dynamic perspective on the response measures taken by industries and firms in the face of external shocks and the series of changes that occur and the performance that follows.By studying the case of Kaizhong Precision,this paper finds that there are a number of causal factors that make Chinese companies engage in reverse cross-border M&A.First of all,our government has issued a series of encouraging policies and documents,giving confidence and policy support for enterprises to "go global",and at the same time,China maintains friendly relations with many countries,which is conducive to our enterprises to carry out transnational activities smoothly.The favorable economic environment and advanced technological resources in developed countries are also a major incentive for reverse M&A behavior of Chinese companies.Moreover,global factors such as the global economic integration and the development of science and technology have also contributed to the occurrence of reverse M&A behavior.On the other hand,changes in factors of production such as labor,capital,resources,technology,and management knowledge affect the structure of the industry,and companies have responded with a series of measures to respond to the change of industry structure.The rising cost of labor and materials,as well as the lack of technological resources,have led to the low productivity of Chinese enterprises.In order to obtain advanced technology resources and improve production efficiency,Chinese enterprises have started to pursue more efficient and effective "smart manufacturing",and have joined the ranks of reverse cross-border M&A.This paper finds that Kaizhong Precision is characterized by the use of all-cash payment and the "advanced" overseas M&A method of completing M&A through foreign subsidiaries.Accordingly,this paper analyzes the M&A performance of Kaizhong Precision at three levels:market performance,operational performance and strategic performance,and finds that the M&A event has a significant good effect on its market performance in the short term.In addition,in terms of payment method and its operating performance,the choice of all-cash payment method by Kaizhong Precision accelerated the M&A process,and its good credit standing and operating condition provided sufficient conditions for Kaizhong Precision to apply for M&A loans from banks.Although this raises interest expenses and R&D expenses in the short term after the merger,increasing the financial risk of the company from the perspective of financial indicators,in the long term,the management expenses are significantly reduced after the merger,realizing management synergies and enhancing the company’s independent R&D capabilities.With the improvement of operating income and core profit earning capacity,the cash flow level also gradually recovered.Finally,in terms of strategic performance,through the acquisition of SMK in Germany,Kaizhong Precision has not only directly acquired high-quality fixed assets overseas,but also added intangible assets such as patents and trademarks,made rapid breakthroughs in R&D projects,and formed a sound independent intellectual property system.In addition,Kaizhong Precision has added new business lines,increased the proportion of overseas operating income,achieved good overall innovation performance,and improved its position in the international market and global value chain.Finally,this paper has obtained the following conclusions using Kaizhong Precision as an example:Reverse M&A enables companies to achieve excellent market performance in the short term.Supported by good credit standing and stable financial structure,all-cash payment of M&A price can accelerate the M&A process,which has a certain impact on cash flow in the short term,but can achieve management synergy and good operating performance in a comprehensive view.Finally,reverse M&A is conducive to the breakthrough of key technologies and the improvement of independent innovation capability of the enterprise,and to the formation of a completely independent intellectual property system.This is ultimately conducive to the realization of its strategies to develop international markets and improve its international market position. |
