Research On The Risk Of Performance Commitment Agreement In The M&A Of J&R Optimum Energy

In recent years,the activities of Chinese enterprises in the M&A market have become more and more frequent,especially the enterprises in traditional industries have become increasingly deteriorating in their own operations,and have begun to seek extensional development through cross-border mergers and acquisitions.In order to ensure the healthy,orderly and stable operation of the M&A market,the performance commitment system came into being.The original intention of introducing the performance commitment system is to protect the rights and interests of small and medium shareholders from being infringed,adjust the valuation of M&A,and motivate the management of target companies.However,the implementation of performance commitments also leads to the phenomenon of high valuation and high performance commitments,which not only harms the interests of both parties,but also is not conducive to the healthy development of the M&A market.Therefore,it is of great significance to explore the risk of performance commitment and to play the positive role of performance commitment in mergers and acquisitions.Based on the above background,this paper selects the case of Jianrui Wo Neng’s acquisition of Waterma for research and analysis.First,it sorts out the relevant literature and theoretical basis of the performance commitment agreement,and then cites the expansion model of expectation theory and Based on the characteristics of the performance commitment agreement,identify the key risks and related influencing factors of the performance commitment,focusing on valuation risk,performance commitment clause setting risk and management behavior risk.Thirdly,a risk analysis framework is made based on the motivation of signing the performance commitment agreement between the merger and acquisition parties,and the key risks and the mutual influence and superposition effect between the risks are analyzed in detail through the financial analysis method and the comparative analysis method combined with the risk factors.Valuation,performance commitment terms,and management’s behavioral perspective are recommended.Through case analysis,the following conclusions can be drawn: First,the double high performance promise will send false optimistic signals to the acquirer and the appraisal agency.The acquirer often regards the performance promise as a strong guarantee for high-premium mergers and acquisitions.Under the income method,the appraisal agency will also refer to the high commitment of the target party,and the high valuation is generated under the boost of the performance commitment,which has laid hidden dangers for subsequent operations,and the performance commitment has lost its original role in adjusting the valuation risk.Second,high valuations are often accompanied by strict terms,and whether the terms are reasonable or not will have a significant impact on the follow-up of the merger.Unreasonable settings will induce behavioral risks for the target company’s management and cause the company to focus too much on short-term performance.It is not conducive to the sustainable development of enterprises,especially for enterprises seeking transformation,the consequences of substandard performance often need to be borne by the acquirer themselves,and the failure of performance promises causes the risk of impairment of goodwill generated at the beginning of mergers and acquisitions,which leads to the failure of mergers and acquisitions.