6.0 Conclusion and recommendation Firstly, the senior manager should select suitable company before merger and acquisition. Analyzing the financial performance of targeted company is an important phase to reduce the risk of acquisition. During the competition of acquisition, the bidder should draw up an optimal plan to cater the shareholders in order to achieve success. Secondly, LBO financing acquisitions does increase the financial risk, thus, LBO companies should conduct the financing risk analysis before acquisition (Ramaswami, 1991), using financial technology to strengthen financial risk control and avoid the risk of financing. Thirdly, when the high purchase price financed by the debt and catch up with the unfavorable operating environment, the cash flow after LBO may face crisis (Okamoto, Pedersen & Pedersen, 2011). This is the root reason that leveraged buyouts may cause financial risks. Therefore, during the bid, if the competition leads to artificially high prices, the bidder should determine to give up immediately, to avoid excessive competition. In addition, the high leverage greatly narrow the scope of the changes between the planned cash flows and debt facilities, left little space to mitigate the adverse environmental pressure (Cameron, Cramton & Wilson 1997). This led to the collapse of the final cash flow. Therefore, the acquisition of enterprises should avoid excessive leverage, and leave some change space for cash flow. Last but not least, the completion of the acquisition does not mean that the optimal financing structure. After the completion of the acquisition, the new management should timely adjust and optimize the financing structure based on the business environment, financing costs and cash flow. Thereby the company may further reduce the cost of financing and relieve the high debt pressure.
9 References Berkovitz, Y. E. (2009). LBO risk in credit spreads (Doctoral dissertation, COLUMBIA UNIVERSITY). Briloff, A. J. (1989). LBOs and MBOs in the takeover alphabet soup some questions for lawyers, answers from an accountant. J. Corp. L. , 15 , 171. Cameron, L. J., Cramton, P., & Wilson, R. (1997). Using auctions to divest generation assets. The Electricity Journal , 10 (10), 22-31. Davis, S. I. (1989). Risk: Some New Dimensions. In Managing Change in the Excellent Banks (pp. 14-23). Palgrave Macmillan UK. Lampert, H. (1990). True greed: what really happened in the battle for RJR Nabisco . Dutton Adult. Landsman, W. R., Shackelford, D. A., & Yetman, R. J. (2002). The determinants of capital gains tax compliance: evidence from the RJR Nabisco leveraged buyout. Journal of Public Economics , 84 (1), 47-74. Okamoto, K., Pedersen, D., & Pedersen, N. (2011). The Price Effects of Event ‐ Risk Protection: The Results from a Natural Experiment. Journal of Empirical Legal Studies , 8 (4), 878-903. Ramaswami, M. (1991). Hedging the equity risk of high-yield bonds. Financial Analysts Journal , 47 (5), 41-50. Ruback, R. (2006). RJR Nabisco . Harvard Business School.
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