Financial Motives Of Mergers And Acquisitions In China

M & A is a strategic choice voluntarily made by enterprises in order to survive and develop. The motive of M & A is embodied in the motivation of enterprises.

As a form of capital concentration in market economy, M & A can be developed rapidly due to its short time.

This development is the objective requirement of socialized production.

In today's developed market economy, enterprises are paying more and more attention to using M & A as a means to expand operation, realize the concentration of production and capital, and achieve the goal of external growth. The practice of M & A in China proves that M & A is not only a necessary means and a positive way to realize optimal allocation of resources, but also an inevitable choice for state-owned enterprise reform.

Mergers and acquisitions (M & A) refers to a company's purchase of claims, direct investment, holding and other means of cash, bonds, stocks or other valuable securities, and the acquisition of other enterprises' stocks or assets, so as to obtain the actual control of other enterprises' assets and make them lose their legal person qualification or control.

According to the industry involved in M & A and the market performance after M & A, there are three main modes of M & A: (1) horizontal mergers and acquisitions.

Refers to mergers and acquisitions between the same industry, the same stage of production, and the production of homogeneous products in the same market in the same area.

Horizontal merger is usually the cooperation between commercial rivals, and the result is that capital is concentrated in the same production and sales field or department. The dominant enterprises absorb the inferior enterprises and form the lateral trust to achieve the best economic scale under the new technological conditions.

(2) vertical mergers and acquisitions.

Refers to the M & A between an enterprise and its suppliers or customers, that is, the merger and acquisition of the dominant enterprises will be closely related to their production and at the stage of their production and marketing, thus forming a vertically integrated economic behavior.

Its essence is to produce mergers and acquisitions between enterprises in different stages of production.

(3) mixed mergers and acquisitions.

It refers to mergers and acquisitions between non competitors and non real or potential customers and suppliers, that is, M & A enterprises are not directly related to products and markets and are in different industries.

Mixed M & A includes three specific forms: product expansion, market expansion and pure merger.

Two, the financial motivation of M & A is 1. The main reason for M & A is that the integrated enterprises may have more total revenue.

The increase of business revenue mainly comes from marketing, strategic advantages and market control.

First of all, in marketing, mergers and acquisitions will improve previously inefficient advertising, weak distribution networks and unbalanced product lines. Secondly, some mergers and acquisitions can gain strategic advantages in technology and industry and increase flexibility in the future. Finally, mergers and acquisitions can increase their market power, enhance their ability to control the market, and increase the substantial monopoly income by reducing competition.

2, saving paction costs and reducing direct investment costs. Enterprises can save paction costs through mergers and Acquisitions: (1) enterprises acquire knowledge through research and development inputs.

In the case of information asymmetry and externality, the market value of knowledge is difficult to achieve. Even if it can be realized, high bargaining costs will also be required.

At this point, if the knowledge is used in the same enterprise through mergers and acquisitions, the purpose of saving paction costs will be achieved. Secondly, the production of some enterprises needs a large amount of intermediate product input, while the market of intermediate products has such problems as the uncertainty of supply, the difficulty of controlling quality and opportunism.

Through mergers and acquisitions, enterprises can pform partners into internal institutions, which can eliminate these problems. Third, enterprises form a large scale organization through mergers and acquisitions, which separates the functions of organizations and forms an internal market system based on management.

Generally speaking, the management cost of coordinating internal organizational activities with enterprise's administrative directives is lower than the paction cost of market operation.

3, to achieve reasonable tax avoidance, after the merger and acquisition, there are basically three ways to reduce the income tax and reduce the tax revenue: (1) enterprises can use the deferral provisions in the tax law to avoid tax reasonably; (2) the merger and acquisition of enterprises without the use of cash and the conversion of shares can achieve the purpose of asset flow and pfer and the purpose of additional investment and asset diversification without tax payment; (3) the acquisition of convertible bonds can be enjoyed by enterprises.

The tax law stipulates that the deduction of capital interest before tax and the delayed payment of capital gains will give less preferential tax on capital gains tax.

4, the free cash flow is the free cash flow of the company's cash after paying all the net present value of the investment plan.

Generally speaking, the business cash flow of products in mature stage often exceeds the requirement of internal feasible investment opportunities (i.e. NPV>0 projects), thus forming a large amount of free cash flow.

While the enterprises in the development stage have more profitable investment opportunities, they are faced with serious cash shortage. If the above two enterprises are combined into one, the free cash flow can be fully and effectively utilized.

5, in order to enhance the value of enterprises, all enterprises' earnings have cyclical fluctuations and are always sensitive to some degree.

But different enterprises have different cyclical changes.

Therefore, a company with large cycle changes can realize diversification of the investment portfolio through mergers and acquisitions of a stable enterprise. In addition to dispersing the specific risks of individual enterprises, it can also reduce the investment risk of investment groups in a certain degree under certain conditions, so as to increase their own stability and thereby enhance their earnings or sales stability.

In a certain range, shareholders will treat earnings instability and risk equally. Therefore, through mergers and acquisitions to achieve diversified investment portfolio and reduce the instability of corporate earnings, it will have a favorable impact on the company's stock prices.

After 6 years of development, the Chinese securities market has undergone profound changes in the Target Corp market.

First, most of the listed companies on the stock market are no longer pocket stocks; the two is the financing channel system.

In the long run, relying on the financing of listed companies is still one of the motivations for mergers and acquisitions.

The "shell" resources have a higher value in China's securities market than in the general market economy countries, the main reason lies in its scarcity, and this scarcity is actually formed by special system.

This has made many kinds of enterprises backdoor listing and shell buying and listing become the main way to enter the securities market.