Study On Motivation And Economic Consequences Of High Premium M&A Of Wuxi Huadong Heavy Machinery Co., Ltd.

In recent years,with the rapid development of market economy,the demographic dividend has gradually disappeared,and China’s traditional industries are suffering unprecedented development crisis.New industries such as high-tech industries have gradually become the development trend.The country is vigorously promoting supply-side structural reform and strategic industry upgrading of traditional industries.Compared with the traditional manufacturing industry,the high-tech industry has the advantages of strong innovation ability,more professional talents,broad market prospects,more preferential policies,and large future profits.It is the main force of scientific and technological innovation.However,the high-tech industry has high technical barriers,and it is difficult for traditional industries to achieve transformation and upgrading in a short time.At this time,M&A is the best way for enterprises to enter the high-tech field.At the same time,because high-tech enterprises have problems such as short development time,high investment cost and high investment risk,they also need to introduce more investment funds through mergers and acquisitions to optimize the allocation of resources and improve the market competitiveness of products and technologies.The integration of resources between traditional enterprises and high-tech enterprises through mergers and acquisitions will bring benefits of 1+1>2to both enterprises,so the number of M&A is increasing year by year.With the continuous heating up of M&A boom,high-premium M&A happens more and more frequently,and the high valueadded rate of valuation often brings huge risks.In recent years,the failure cases of high-premium M&A occur frequently,which has aroused widespread concern in the society.In the process of M&A and future operation of the enterprise,the rationality of the valuation of the target enterprise,the feasibility of the implementation of the fund raising plan,the effectiveness of the coordination and integration management and other aspects of comprehensive and effective management and control determine the success of merger and acquisition.This paper selects the heavy industry equipment manufacturing enterprises in the key enterprise—Huadong Heavy Machinery M&A Harvest Star Technology—a high-end equipment manufacturing enterprise.It illustrated the background,process and content of this M&A,analyzing the risks and the control measures in the process of M&A.Then it listed the four motivations of this M&A.First,Huadong Heavy Machinery is to complete industrial upgrading and seek new profit growth point.Second,the target company Harvest Star Technology has broad industry prospects,appraise value is higher.Third,the gross margin level of Harvest Star Technology is better than its biggest competitor Shenzhen Genesis.Fourth,enterprises of both sides want to realize resource integration through M&A and play a synergistic effect.Then,this paper analyzes and evaluates the economic consequences of the merger by using event study method,financial index method and EVA analysis method,analyzing the changes of enterprise business,the fulfillment of performance commitment,the short-term market reaction,the changes of financial indicators and the changes of enterprise economic added value before and after the M&A.The study found that,After the M&A,Huadong Heavy Machinery upgraded from the traditional equipment manufacturing industry to the high-end equipment manufacturing industry that is more in line with the development trend of The Times,and successfully completed the strategic goal of expanding business and realizing industrial transformation and upgrading.All financial indicators and EVA values perform well and show an upward trend before 2020.It can be seen that Huadong Heavy Machinery has played a synergistic effect after the merger and integration,and the enterprise’s debt paying ability,profitability,operation ability,growth ability and shareholder value have been improved in three years.However,from the data of Huadong Heavy Machinery in 2020,the gap is relatively large,various indicators have declined greatly,the operating income has been greatly reduced,the high goodwill impairment loss risk brought by the high premium in the early stage began to appear,Harvest Star Technology was deducted a lot of goodwill impairment,the enterprise suffered losses for the first time.The reason is mainly due to the sudden outbreak of the epidemic and foreign trade frictions in 2020,which led to a substantial decrease in market demand and a significant decline in orders.Finally,according to the above analysis conclusions,the research enlightenment and conclusion are drawn,hoping that the experience of this M&A case can be used for reference by similar enterprises.