Between Prosperity And Desolation Of The 71St Supervision: Vigilance Against The Sequelae Of Merger And Reorganization

? ? ? ? On July 16, in response to a reporter's question on the ecology of M & A, the CSRC said that the market activity of M & A remained at a high level, and the CSRC would continue to implement the policy of "system building, non intervention and zero tolerance", constantly optimize the regulatory mechanism of M & A and promote the overall quality improvement of listed companies.

As an important way to revitalize assets and improve the efficiency of resource allocation, M & A is an important tool for listed companies to enhance industrial collaboration and expand business areas. In recent years, some listed companies have strengthened their strength and even transformed themselves through merger and reorganization. Some companies, after a short period of prosperity after the acquisition, ended up in a dark mood due to blind cross-border pursuit of hot spots, ineffective integration, overdraft of profitability in the commitment period, which has brought a scar to the capital market, and some companies and trading counterparties have touched the red line of violation, Punished by regulatory authorities.

The experience and lessons learned from the past may become the "stone from other hills" for listed companies to use the tools of M & a reasonably.

As an important way to revitalize assets and improve the efficiency of resource allocation, M & A is an important tool for listed companies to enhance industrial collaboration and expand business areas- Visual China

Radical cross border chicken feather

Looking back on the performance forecasts of Listed Companies in the past three years, large amount of goodwill impairment is one of the important reasons for "performance explosion", and the fuse is the early radical merger and acquisition. How to embody "Radicalism"? The prominent features are "more cross-border, fast pace, large volume and high premium".

From 2015 to 2016, cross border M & A accounted for more than 50% of M & A transactions. Although successful cross-border mergers and acquisitions can open up new development space for enterprises, many cross-border mergers and acquisitions are also a dead end. Not only the new business has not been done, but the original business has also been abandoned. Cross border M & A makes enterprises enter a new field. Due to the lack of experience and information, as well as the differences in corporate culture, business model, development concept and organizational structure between the two sides, the difficulty of later integration is increased.

Gem was originally engaged in the production of chemical materials. After listing, it focused on the Internet marketing field that had not been involved before. Since 2015, it has purchased four target companies and entered the new industry in a large scale, and began to operate in double main businesses.

Radical cross-border has planted the seeds of risk. Due to the optimistic prediction of future business performance and hot topics of Internet marketing, the four M & A targets have been given over overvalued value, with the value-added rate of more than 10 times, and the highest value-added rate is as high as 38 times. The company generated 3.3 billion yuan of goodwill due to the acquisition of the above four acquisition targets. Since 2018, there have been a series of operational problems in the four subject matters, with significant decline in performance and provision of large amount of goodwill impairment. As a result, the listed companies have suffered huge losses in performance for two consecutive years. Finally, they sold the related underlying assets to related parties at a "low price" of 300 million yuan, and the cross-border purchase cost of nearly 4 billion yuan finally fell into a state of "drawing water out of nothing".

Since the initial merger and acquisition, regulatory authorities have focused on the prudence of the underlying asset income forecast, business sustainability, core assets and core competitiveness; During the performance commitment period, the company is required to explain the high accounts receivable and high gross profit margin of marketing business; During the period of disposal of the subject matter, the fairness of the disposal price, whether it involves the transfer of interests and the recoverability of the disposal price shall be focused on.

In the view of industry insiders, the company's management lacks in-depth understanding of the Internet marketing industry, does not fully prepare for the business, assets, personnel integration and industry risks brought about by the merger and acquisition, and excessively relies on the management team and performance commitment of the target company, resulting in huge losses to the company.

Through the "two pronged approach" of regulatory guidance and market baptism, the proportion of industrial integration has risen to about 60% in recent years, and the transaction logic is more rational and pragmatic.

Internal control defects bring bad results

How to establish the internal control system of "temper justice with Leniency" between the listed company and the target of merger and acquisition is a kind of knowledge. If it is not handled properly, it will face the risk of "one auction, two scattered". In many "Thunderbolt" cases, the subsidiary out of control caused by internal control defects is also one of the representative "merger sequelae". According to incomplete statistics, in the past three years, nearly 30 companies have lost control of the target of merger and acquisition.

A typical example is a company which was originally engaged in the production of art ceramics on the gem. After listing, it successively acquired educational assets. In 2015 and 2016, it won a bid of a certain education information industry, with an estimated value of 700 million yuan; In 2018, the company acquired a target B of IT training course by issuing shares and paying cash, with a transaction consideration of 1.6 billion yuan. But soon after, the two companies lost control.

In 2018, the company's financial reports were issued with audit reports that could not express their opinions. The issues involved included the limitation of the audit scope of subject B and the doubt of the authenticity of the purchase of large intangible assets of subject a, and the defects of internal control began to appear.

In 2019, the management of subject a voluntarily extended the commitment period after the performance commitment period expired, but required the listed company not to interfere in its operation and management. The weakness of the listed company's control over the merger and acquisition target is obvious. The exchange then inquired about the control and management of subject a since the acquisition of the listed company, and whether the relevant arrangements actually constitute a waiver of control.

Under the in-depth follow-up inquiry of the exchange, the company said that since 2018, subject a refused to cooperate with the audit and purchased a large amount of intangible assets without authorization. Its management even took such measures as calling the police, detaining the official seal, withholding the business license and closing the office space to resist the takeover of the listed company. After the completion of the merger and acquisition, subject B refused to provide financial information, obstructed the chief financial officer assigned by the company to carry out work, and made large amount of capital exchanges with a third party.

Since 2019, the company's actual controller and the original shareholders of bid B have mutually identified violations of laws and regulations and scrambled for seats on the company's board of directors. The farce has not yet ended.

At present, both sides are trying to solve the problem through judicial means, and the relevant matters are still under investigation.

In fact, there are already traces of the out of control of the two merger targets mentioned above. Since the beginning of merger and acquisition, the company acquiesced in the actual control of the underlying assets by the counterparties, failed to put forward targeted integration plans according to the actual situation of the target company, and failed to bring the target company into the control system of listed companies. When the target of merger and acquisition shows signs of out of control, it is too late to take action again.

"Buy profit" M & A

Some enterprises are eager to achieve the purpose of "buying profits", covering up the problems and defects of the underlying assets, and "whitewashing the peace". They do not hesitate to make their short-term performance reach the standard by means of increasing their income falsely, which can be described as "drinking poison to quench thirst".

In 2015, a special equipment manufacturing company on GEM issued shares to purchase 100% equity of a main 3C product business company, with a transaction price of 260 million yuan and an evaluation value-added rate of 842%.

From 2016 to 2019, the performance commitment of the M & a target reached the standard accurately, and the overall completion rate was 102.37%. In the first half of 2020, the target of merger and acquisition suddenly lost 25.31 million yuan, and the company immediately made full provision for goodwill impairment in the third quarter. Subsequently, some investors found that the target of the merger and acquisition had already closed, and the switchboard telephone could not be connected. The exchange has also conducted several rounds of inquiry, and gradually revealed the problems such as business shrinkage, staff turnover and inability to maintain normal operation after the performance commitment period expired.

It is worth noting that in 2020, the target company of the merger and acquisition made large amount of bad debts for the top four accounts receivable customers, with the withdrawal proportion of more than 80%. All the related accounts receivable were formed in the performance commitment period and have been overdue so far. Due to the inability to obtain the letter of confirmation and the insufficient implementation of the alternative procedure, the accountant issued an audit report which could not express opinions on the company's financial report in 2020.

All the above-mentioned signs have clouded the authenticity of the target's performance in the commitment period.

On the one hand, the high premium and high performance commitment, which are divorced from the reality, bring great pressure to the follow-up operation of the underlying assets. On the other hand, the listed companies may acquiesce in the doubts about the authenticity of the performance in order to achieve the target profits. It seems accidental that the operating condition of the target company deteriorates rapidly after the performance commitment of the target company expires, but it is also the inevitable outcome of the "buy profit" M & A.

M & A is a "double-edged sword". If it is used properly, the company's quality will be significantly improved. If it is not used properly, the risk will be great, and even the violation of laws and regulations will be touched. In recent years, China Securities Regulatory Commission (CSRC) and the stock exchange have strictly dealt with violations in mergers and acquisitions. Taking financial fraud of the subject matter of M & A as an example, they have given top punishment to relevant violations in recent three years, highlighting the "zero tolerance" attitude.

In the final analysis, a good merger and reorganization should start from the long-term development plan of listed companies, make prudent decisions, carefully plan, implement steadily and effectively.

In advance, we should select the M & A assets that match the main business of listed companies and can be integrated, and fully evaluate the target of M & A, and conduct careful research. In the process, we should set up reasonable trading plans and performance commitments, control the pace of expansion, and guard against the trap of radical cross-border falling into diversification regardless of their own strength. At the same time, the completion of M & A is only the first step in the Long March, and the integration stage should not be taken lightly. The control of the target enterprise should not be limited to obtaining financial statements, but should establish a sound and effective internal control system, set up the internal control arrangements approved by both parties, regularly review the integration situation, and adjust the control strength, so as to finally achieve mutual cooperation The effect of collaborative development.

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