Financial Traps In Due Diligence Of Mergers And Acquisitions

Incompatible old regulations

After 30 years of rapid development, enterprises active in the Chinese market are diverse and have different backgrounds and development paths.

In the past 30 years, it has been the 30 year of the great development of China's legislation. Many laws and regulations related to economic development, from scratch to perfection, provide a more and more standardized platform for all enterprises in China to ensure the rapid and healthy development of social economy.

Laws and policies are in step by step, but enterprises do not appear after the regulations are in place.

After the promulgation of new policies and regulations, enterprises must make necessary adjustments to their existing operations in order to meet the best interests of enterprises.

So complex problems arise: first, not all existing operations can be smoothly adjusted; second, not all enterprises understand all laws and regulations thoroughly.

For the first case, many of the old enterprise systems that are not easily adjusted will continue.

That is to say, these old systems are not bound by new laws, and English is commonly known as "Grandfathering".

The fact that people who enjoy Grandfathering or things or people who do not enjoy Grandfathering have complicated problems.

Grandfathering generally does not really solve problems, but is a temporary measure of problems.

Grandfathering problems usually fade away over time.

The second case is more difficult for enterprises.

It is impossible for any enterprise to ensure that all laws and regulations are well understood, especially when the laws and regulations are fast and massive.

When making decisions, many enterprises often do not know the overall impact of this decision on the enterprise, especially the long-term impact. Many of the decisions that seem correct today may be out of date when the policies and regulations change tomorrow.

Talents inspire landmines

Nowadays, many enterprises are eager to be talented and eager to make efforts to motivate and retain talents.

A boss made an oral promise to five leaders: if they worked in the company for 5 years, the company rewarded each person with a value of 1 million yuan.

This verbal promise will not appear in any statement.

The merger has not been successful yet, but assuming that it has been successful and the oral commitment has not been found in due diligence, then a few years after the successful paction of both parties, it is very likely that some backbone will require the company to cash in the "deserved" property.

The reason for this is that when the CEOs introduce similar "retention talents" schemes, they seldom consider their long-term financial impact, even when they are making some written decisions.

For example, Minister Wang of the Ministry of personnel found the chief executive of the enterprise and applied for 200 employees on the job to increase the monthly housing allowance by 100 yuan per person.

The business is very good. The average monthly salary of employees is 5000 yuan, 20 thousand yuan a month, and 240 thousand yuan a year.

The boss felt that even 300 thousand yuan would not be a problem. The extra $60 thousand would give the company 10 retired employees 500 yuan per month.

The real purpose of the boss is to do so: tens of thousands of yuan is not much, but it can enable employees to feel the concern of the enterprise.

Employees feel at ease and work together, and the cohesive force increases, and the development of enterprises will be better.

{page_break}

However, he overlooked the long-term financial impact of this move, which is the common fault of many business executives.

China's accounting standards began to accept internationally accepted guidelines in 2007. It requires enterprises to disclose long-term liabilities of employees in the balance sheet and profit and loss account, that is, actuarial liabilities.

If the boss knew that the $60 thousand he gave to retirees was reflected in the company's balance sheet, the figure might be 10 million yuan. Would he still sign so freely? From $60 thousand to $10 million, it was not sensational. This is a true story that I just finished.

The merger was finally carried out smoothly, and some provisions of the employee's housing allowance were amended before the two sides signed, avoiding the appearance of 10 million yuan debt in the statement.

This is a happy result, but if actuaries do not find this benefit?

Many high-tech companies retain the backbone of their employees through a variety of ESOP schemes.

In February 2008, the forecast of the performance of the largest dairy company in northern China was disclosed. Because of the implementation of the stock incentive plan, according to the relevant provisions of accounting standards, the calculation of equity instruments should confirm the cost in the current period. The company's net profit will lose in 2007, and the company's net profit in 2006 will still be 345 million yuan.

In March 7, 2008, the morning morning news reported to a large pharmaceutical company in southern China that the implementation of equity incentive resulted in a net loss of about 50 million yuan in 2007 as a result of the new accounting standards.

Here, there is no long history left behind, nor is there any long-term welfare of employees after a long wave of employees, which is entirely new welfare for new employees. However, due to the updating of accounting policies and regulations, the complexity and depth of due diligence has reached a new level.

Every M & a project will do due diligence, and every due diligence includes human resources.

But if the HR survey tells you only the number of employees, hierarchy, total wages and annual total cost, what is missing in the Chinese market?