| In recent years,with the frequent occurrence of overvalued and high premium,performance loss and goodwill impairment in the implementation of performance compensation commitments,the profitability payment plan used in foreign M&A cases has gradually attracted domestic attention.Unlike the performance compensation commitment,the profitability payment plan is a deferred and contingent payment method agreed in advance and paid after the event.However,there are still few M&A cases using the profitability payment plan in China’s M&A market at present,and the risks existing in the application of the profitability payment plan in M&A still need to be explored.Based on the information asymmetry theory,option theory and risk control theory,this thesis deeply analyzes the risks,causes and problems arising from Earnouts,taking Kehua Biological’s acquisition of Tianlong Technology as the research object.First of all,this thesis identifies the risks existing in each stage of Earnouts,and makes a quantitative assessment of the risks;Secondly,it analyzes the causes of risk in each stage;Finally,in view of the disadvantages and possible risks of Earnouts,suggestions are provided from the perspectives of the acquirer and the regulator.Through research,this thesis finds that:(1)The motivation of the payment plan of Shanghai Kehua Bio-Engineering Co.,Ltd’s choice of Earnouts is as follows: First,to ease the financial pressure of one-time payment by the acquirer;The second is to control the valuation differences between the merger and acquisition parties;Third,reduce the integration risk through the corresponding retention mechanism.(2)The problems in the design and use of the profitability payment plan aggravate the risk of the merger and acquisition of Shanghai Kehua Bio-Engineering Co.,Ltd’s,which eventually leads to the loss of control of the subsidiary and the delisting of the parent company.Specifically,the valuation risk before signing the profitability payment plan is prominent;The payment risk is high when the agreement is signed;After the implementation of the agreement,there are risks of integration and loss of control of subsidiaries.The risk of each stage of the profitability payment plan is quantitatively assessed by the analytic hierarchy process.The results show that the valuation risk before the signing of the agreement is the highest,and the acquirer needs to focus on it.(3)The risks at each stage of Earnouts have the following causes: First,Shanghai Kehua Bio-Engineering Co.,Ltd did not conduct due diligence before signing the agreement;The second is the unscientific design of M&A payment scheme when signing the agreement;Third,after the signing of the agreement,the acquirer’s incentive and supervision to the merged party were insufficient,and the subsidiary company failed to perform the collateral obligations in the contract in a timely manner,resulting in the loss of control of the subsidiary company.(4)In view of the above risks,the acquirer can control the valuation premium risk by weighing the cost-effectiveness of the payment scheme in advance and paying attention to due diligence;Reasonably set the payment plan for mergers and acquisitions;After the event,strengthen the risk control by maintaining the operation and financial control of the merged party and paying high attention to the performance obligations in the contract;For China’s regulatory authorities,they should strengthen the review of intermediaries,improve the relevant laws of the profitability payment plan,and further standardize the application of the payment mechanism in China.The research features and significance of this thesis are as follows: through the research on the case of Shanghai Kehua Bio-Engineering Co.,Ltd M&A,it has enriched the theoretical system of Earnouts in China,and hopes to provide a reference for the risk control in the process of designing and using the profitability payment plan for listed companies,enhance the risk response ability of enterprises,and improve the efficiency of M&A. |
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