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22Исследование эффективности M&A по методу анализа среды функционирования: опыт поглощения шэньчжэньского банка развития группой Ping Ап Group
Research on Performance of M&A Based on DEA: A Case Study of China Ping An group M&A of Shenzhen Development bank
УДК 336.7
Лян Сун
ассистент Финансового университета при Правительстве РФ 125993, Москва, Ленинградский пр., д. 49
Song Liang
Financial University under the Government of the Russian Federation Leningradskiy Ave 49, Moscow, Russian Federation, 125993
с ускорением процесса экономической глобализации страховые институты Китая начали поиск диверсифицированного развития. В 2010 г. китайская компания Ping An Insurance Group, часть группы Ping An Group, осуществила комплексное приобретение Шэньчжэньского банка развития. Цель. Дать оценку финансовой и технической эффективности деятельности группы Ping An Group за шестилетний период до и после осуществления приобретения. Методология. В настоящей работе проведена оценка эффективности деятельности компании с помощью построения системы оценки эффективности банковской деятельности, используя анализ среды функционирования (Data Envelopment Analysis), анализ рентабельности, стратегии роста бизнеса, качества активов и платежеспособности. Результаты. согласно полученным данным, очевидное улучшение рентабельности и операционного потенциала роста финансовых показателей после осуществления процедуры слияния и поглощения отсутствует. К тому же снижение качества активов и платежеспособности показывает, что краткосрочный эффект для компании неосязаем. Тем не менее эффект от сделки может иметь перспективы развития и стратегическое значение в долгосрочной перспективе.
Выводы. сделки слияния и поглощения среди финансовых институтов в Китае в краткосрочной перспективе не оказывают си-нергетического эффекта на финансовые показатели компании, что было доказано на примере поглощения Шэньчжэньского банка развития группой компаний Ping An Group.
Ключевые слова: слияния и поглощения, анализ эффективности, анализ среды функиони-рования, Ping An Group, DEA
With the growth of economic globalization process, China's insurance institutions have showed diversified development. In 2010, Ping An Insurance Group Company of China Ltd. (China Ping An Group) implemented a comprehensive acquisition of Shenzhen Development Bank. Aim. This paper makes an appraisal regarding six-year scale efficiency and technical efficiency of Ping An Group before and after the acquisition.
Methodology. The investigation requires a wide range of meeasures such as data envelopment analysis (DEA) that is used in this paper, the profitability evaluation,business growth asses-ment. To build a reasonable bank performance appraisal system we used an estimation of quality of assets and solvency. Results. According to this research there is no obvious improvement of profitability and operating growth capacity in the financial indicators after the implementation of the merger and acquisition, and the decline in assets quality and solvency shows that the short term effect is not obvious also. However it has good efficiency and strategic significance in a long-term period.
Conclusion. M&A transactions among financial institutions in China don't render the syner-getic effect on financial performance of the company in the short term that has been proved on the example of merger of the Shenzhen Development bank by Ping An Group group of companies.
Keywords: Ping An Group, merger and acquisition, performance, DEA
g INTRODUCTION
< The only way to become a leading corporation ¡5 for a company nowadays is to go through an
< acquisition of its competitors. Even in the his-| tory of the United States corporations develop-
< ment there are almost no examples of company's o growth through internal expansion, and almost
no examples of large corporations that didn't g grow through certain degree of merger, according ^ to the statements about importance of corporate 2 mergers and acquisitions by famous U.S. econo-> mist George J. Stigler.
Following the importance of the role of M&A for the whole economy we move further to particular industry consideration. Starting from XX century, the global banking industry has experienced waves of mergers and acquisitions three times. Its essence lies in attempt to strategic adjustment due to national banks facing the complex economic environment and changes in market structure. What is more, this phenomenon reflects the evolution of global banking system as well as trends in competition strategies. However, the banking sector acquisitions are not widely spread among emerging markets countries, placing more emphasis on economically developed banks.
Recently, China's economic growth was recorded at about 10% and recognized one of the global high-speed rate followed by 7% highspeed growth rate at the capital market of mergers and acquisitions. M&A deals also play an important role in the process of economic restructuring and industrial upgrading. But, Chinese banking industry is unfamiliar with procedures of M&A, especially with finding profitable opportunity of cross-border mergers and acquisitions,determining M&A costs and benefits, integration within two companies and other issues, that are all caused by lack of understanding and experience in this field.
1. GENERAL SITUATION OF THE MERGER AND ACQUISITION CASE
Ping An Group held 90.75% stake in Ping An Bank and cash in full amount to 17.75 yuan per share price to subscribe Shenzhen Development Bank of 1.639 billion shares of non-public offering shares in 2010. After the transaction, China Ping An became the holding shareholder of Shenzhen Development Bank.
The considered deal in 2011 was organized as follows:
1) First of all, the companies have received approval from Chinese authority called China Banking Regulatory Commission to merge;
2) Next, Ping An Insurance rebought the controlling stake in Shenzhen Development Bank
from Newbridge Capital (16.76%) and from
the general public; 3) Finally, injection of Ping An Bank into Shenzhen Development Bank as its subsidiary.
As a result, Ping An Insurance became Shenzhen Development Banks's controlling shareholder with a 52.38 percent stake,Xinhua said. Ping An Bank became a subsidiary of Shenzhen Development Bank, holding a 90.75 percent share.
Ping An Group was established in 1998, the first domestic joint-stock insurance business with its headquarters in Shenzhen. The company was listed on the Shanghai Stock Exchange (SH601318) and the Hong Kong Stock Exchange (HK2318). The goal of China Ping An is to develop into a comprehensive financial holding company covering insurance, banking and investment. The enterprise has pursued diversification and internationalization, and then has set up Ping An Securities Limited Liability Company and Ping An Trust and Investment Co., Ltd.
Shenzhen Development Bank is the first joint-stock commercial bank that carried out the joint-stock reform offering shares to public in 1987, that was based on a merger of six original credit cooperatives in the special administration region. At the beginning of the establishment, Shenzhen Development Bank achieved capital stock rapid development under the guidance of the government and favorable policy environment, but with the competitive environment intensified, some questions as lower capital adequacy ratio, inferior quality of assets have been exposed. Due to the facts above, in order to analyze China Ping An Group's acquisition effect, this paper studies the six year public financial report before and after the requisition of Ping An Group.
2. ACQUISITION PERFORMANCE STUDY BASED ON DEA
As Data Envelopment Analysis (DEA) was put forward by Charnes, Coopor and Rhodes in 1978, the principle is to keep the decision-making unit (DMU, Decision Making Units) input or output unchanged, to use the mathematical planning and statistics data in order to calculate the relative effective production leading surface, and then to put all the decision-making units into the DEA production leading surface, analyzing the rate of derivation that decision -making units deviate from DEA leading surface,and finally to get the relative effectiveness of each decision-making unit.
1) The selection of indicators
To calculate financial performance, the DEA approach has an absolute advantage in dealing
Input
Average balance of net assets
Operating expense
Ping An Group Performance
The main business income
Net profit
Profit growth ratio
Net profit ratio
Net capital and net asset ratio
Non-performing debt ratio
Owner's equity-
Core capital
with multiple inputs,and especially multiple output problems. In this paper, DEA analysis is used to track the single M & A performance case of China's Ping An, and to calculate the actual M & A performance to evaluate the performance of China Ping An Bank's M & A.
For DEA the selection of its general requirements should follow four principles: (1) input indicators and output indicators should be subject to the purpose of systematic evaluation in maximum; (2) To choose the input and output indicators to streamline. Otherwise, the the calculating results of the DEA will be affected due to increasing numbers of the decision-making units. (3) Preferentially to select a logical correlation rather than a value-related indicator. Whether you choose input or output indicators, you must give a priority to logical rather than to numerical correlation indicators. If there is a strong linear relationship between the indicators, there will be duplicate information in two indicators only one indicator should be chosen. In particular, when the input and output indicators are completely linearly related, the result of the calculation will show all decision units are valid. (4) Input and output indicators from various aspects should be analysed. It is better to take full account of the diversity of input and output indicator system when making an enterprise performance evaluation.
In general, performance evaluation of financial enterprise is based on four indicators:
(1) Profitability index: including capital profit rate (net assets yield), asset profit rate (return on total assets), cost-income ratio, income margin, profit margin, and return on average equity the six indicators, Which mainly reflects the input and output level and profit quality of the enterprise during the operation period.
(2) Business growth indicator: including domestic capital value-added ratio, profit growth rate and economic profit margins,
which mainly reflect value-added situation and business growth level of the financial enterprises.
(3) Assets quality indicator: Including the ratio of non-performing loans, provision coverage, leverage, recognized asset ratio, accounts receivable ratio, net capital and risk reserve ratio, net capital and net assets ratio, which mainly reflects the use efficiency of economic resources occupied by financial enterprises, an asset management level and asset security.
(4) Solvency indicator: Including capital adequacy ratio, core capital adequacy ratio, solvency adequacy ratio, net capital debt ratio and asset-liability ratio, which mainly reflects the debt burden level of the financial enterprises, the solvency and the debt risk they face.
This paper examines the operational performance of Ping An Group and Shenzhen Development Bank before and after the M & A, in four aspects: profitability, operating growth, asset quality and solvency. All aspects of the input and output indicators are shown below:
2) Application model
In 1952, Charne successfully solved the computational and technical difficulties through the introduction of non-Archimedes "small", established a non-Archimedes infinitely small CCR model. Due to the CCR model is a fixed return to scale, it has some limitations in practical application. Thus, on the basis of the CCR model, R. D. Banker, A. Charnes and W. W. Cooper presented the BCC evaluation model in 1984. If the efficiency frontier is set on the variable scale pay, the efficiency value will be calculated according to the BCC model. At this time, the efficiency value is two, namely, the pure technical efficiency and the scale efficiency value. The main difference between the overall technical efficiency value and the pure technical efficiency value is that the DMU is not operating on the
Input Output: profitability Output: operating growth
Average balance of net assets Operating expenses The main business income Net margin Profit increasing ratio Net margin ratio
2008 679492 142110 108516 1635 -85.97% -0.05
2009 820138 128254 147835 14482 712.03% 0.13
2010 1053669 167122 189439 17938 12.19% 0.12
2011 1728525.5 219002 248915 22582 34.36% 0.09
2012 2564845 226997 299372 26750 7.70% 0.08
2013 3008419 323796 378948 43542 69.16% 0.08
Table 2
Input Output: asset quality Output: solvency
Average balance of net assets Operating expenses Net capital and net asset ratio Non-performing loan rate Owner's equity Core capital
2008 679492 142110 0.98 185.12 67159 11676
2009 820138 128254 1.2 217.39 91743 14309
2010 1053669 167122 1.42 172.41 116883 32919
2011 1728528.5 219002 1.21 135.14 171342 67244
2012 2564845 266997 1.2 105.26 209649 76896
2013 3088419 323796 1.03 103.09 227103 78099
DEA calculation results are as follows: Table 3
DEA calculating result of profitability DEA calculating result of business growth
Overall technical efficiency (Crste) Pure technical efficiency (Vrste) Scale efficiency (Scale) Overall technical efficiency (Crste) Pure technical efficiency (Vrste) Scale efficiency (Scale)
2008 0 0.45 0 0.77 0.93 0.82
2009 0.75 1 0.75 0.75 1 0.75
2010 0.17 0.29 0.58 0.46 0.63 0.73
2011 0.08 0.12 0.46 0.22 0.23 0.94
2012 0.05 0.12 0.38 0.13 0.15 0.9
2013 0.05 0.1 0.46 0.01 0.13 0.77
optimal scale (ie, fixed-scale pay), but at the incremental scale or the diminishing scale. As the BCC model can not only calculate the overall efficiency of the unit, but also calculate the pure technical efficiency and scale efficiency on the basis, for the China Ping An Group acquisition of Shenzhen Development Bank uses this model for analysis. The efficiency 0vrs obtained from the BCC model is a pure technical efficiency.The ratio of the overall technical efficiency and the pure technical efficiency is the scale efficiency 9s = = 9/9vrs. The output and input vectors are represented by Y and X, and their linear programming is:
Min9 = 9vrs Ij + S- = 9X0
Ij - S+ = Y0 = 1
X ^ 0, j = 1, 2, ..., n S+ ^ 0 S- ^ 0
If 9vrs = 1, it is said that the decision-making unit is effective for pure technical efficiency. If 9vrs < 1, it is said that the decision-making unit is inefficient for pure technical efficiency. As scale efficiency 0s, in case 9s = 1, then the unit is in the best scale state, called the scale effective. if 9s ^ 1, indicating that the unit size is invalid. In the case of ineffective it needs a further improvement of the investment resources, or adjust the ratio structure to improve the economies of scale. As a constraint to join the model = 1, is to represent the state of the scale of the income if = 1, then the unit scale income stays unchanged; if IXj < 1, then the unit size increases. That is, appropriate input should be increased based on X0, then the output will be increased; > 1, then the unit size of the returns diminishing,
DEA calculating result of profitability DEA calculating result of business growth
Overall technical efficiency (Crste) Pure technical efficiency (Vrste) Scale efficiency (Scale) Overall technical efficiency (Crste) Pure technical efficiency (Vrste) Scale efficiency (Scale)
2008 0.77 0.93 0.82 0.64 0.68 0.95
2009 0.75 1 0.75 0.87 0.91 0.96
2010 0.46 0.63 0.73 0.92 0.93 0.99
2011 0.22 0.23 0.94 1 1 1
2012 0.13 0.15 0.9 0.87 1 0.87
2013 0.01 0.13 0.77 0.78 1 0.78
that is, the unit's investment scale should be moderately reduced.
3) Analysis result through the DEA model
As the M&A case of Ping An Group to Shenzhen Development Bank occurred in 2010, this paper chooses the case as the studying object, taking the first three years before merger and acquisition, the year of merger and acquisition and three years after the merger and acquisition as samples. Table 1 and table 2 are data of China Ping An group before and after mergers and acquisitions. Table 3 and table 4 are the results of analysis using DEA software.
According to DEA calculation results, as of mid-2013, the acquisition of China Ping An Group results are as follows:
(1) In terms of profitability, the technical efficiency, pure technical efficiency and scale efficiency of Ping An Group after the completion of the merger have not changed obviously, which indicates that the overall profitability has not yet been improved qualitatively.
(2) In terms of operating capacity, China Ping An Group operating capacity growth was caught into a bottleneck after the completion of the acquisition, its operating growth capacity of technical efficiency, pure technical efficiency and scale efficiency values are less than 0.5 in the three years after the acquisition;
(3) In the asset quality, China Ping An Group asset quality technical efficiency and pure technical efficiency dropped significantly after the completion of the acquisition, the scale of efficiency slightly increased , which is due to China's Ping An should continuously inject the fluidity to the new Ping An Bank while conducting structural integration in the completion of mergers and acquisitions;
(4) In terms of solvency, the solvency of technical efficiency, pure technical efficiency and scale efficiency of China Ping An Group in 2011 all achieved 1 after completion, DEA effective re-
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alized and in 2012 and 2013, its solvency had a slight decline, but basically still remained stable.
3. THE EVALUATION AND INSPIRATION FROM THE M&A OF PING AN GROUP
As Using DEA ensures that non-financial indicators are added by scientific methods, reducing subjectivity, content of performance appraisal is improved, strategic orientation is provided in evaluation system, and making sure that results can improve the later working. DEA makes the evaluation versatile and coherent, which is convenient for horizontal and vertical comparison. It is obvious that the evaluation using DEA can solve the loopholes in the current bank performance evaluation.
Through the data analysis, we can see that the short-term performance of China Ping An Group's acquisition of Shenzhen Development Bank did not reflect the synergistic effect of M & A. In one hand after the acquisition, China Ping An Group did not obtain obvious improvement in terms of profitability and operating growth ability on financial indicators. On the other hand, there is a decline in asset quality and solvency. According to the relevant information China Ping An Group mergers and acquisitions Shenzhen Development Bank the capital adequacy ratio is insufficient, resulting in the newly formed Ping An Bank loaned much from Ping An Group, meanwhile the lack of internal resources, high operating costs also have a great relationship to this issue. However, the acquisition is still an important strategic significance for China Merchants Bank, China Ping An Group always hope to achieve the "big financial" dream, that is, form a "insurance, banking, investment" situation by vigorously supporting the Group's banking business.
Shenzhen Development Bank, a national bank with its headquartered in Shenzhen is the first joint-stock company listed on the Shenzhen Stock Exchange's. China Ping An Group mergers and acquisitions Shenzhen Development Bank plays
g a vital role in expanding its banking sector of
i business.
| Bank mergers and acquisitions may have a
g negative effect on its efficiency for a period of
^ time, but M & A banks can expand the scale of
g assets continuing to improve the efficiency of
5 resource allocation and the internal manage-
§: ment level. In addition,going on the M&A it's
^ necessary to prevent multiple risks. The banks
g should proceed from its own abilities and the
ш actual market demand, selecting the appropri-
g ate target market.
< The best choice of the target for mergers and
1 acquisitions must be well-run banks, that not only reduce the integration pressure, but also expand their abilities.
Литература
1. Tsai I-Chun The asymmetric impacts of monetary policy on housing prices: A viewpoint of housing price rigidity // Economic Modelling. 2013. vol. 31. P. 405-413.
2. Hui E.C.M., Zheng X., Hu J. Housing price, elderly dependency and fertility behavior // Habitat International 2012. 36 (2). P. 304-311.
3. Jin Lichun A study on the performance of China's commercial banks in overseas mergers and acquisi-
tions // Zhejiang University of Technology. 2012. P. 16-60.
4. Ma Jianwei Research on performance of overseas mergers and acquisitions by Chinese Enterprises // Beijing Financial Science Research Institute, Ministry of Finance, 2011. P. 133-142.
5. Xu Chen Research on efficiency of overseas mergers and acquisitions of Chinese banks based on DEA // Shandong University of Finance and Economic. 2012. P. 31-42.
References
1. Tsai I-Chun. The asymmetric impacts of monetary policy on housing prices: A viewpoint of housing price rigidity. Economic Modelling, 2013, vol. 31, pp. 405-413.
2. Hui E.C.M., Zheng X., Hu J. Housing price, elderly dependency and fertility behavior. Habitat International, 2012, vol. 36, no. 2, pp. 304-311.
3. Jin Lichun. A study on the performance of China's commercial banks in overseas mergers and acquisitions. Zhejiang University of Technology, 2012, pp. 16-60.
4. Ma Jianwei. Research on performance of overseas mergers and acquisitions by Chinese Enterprises. Beijing Financial Science Research Institute, Ministry of Finance, 2011, pp. 133-142.
5. Xu Chen. Research on efficiency of overseas mergers and acquisitions of Chinese banks based on DEA. Shandong University of Finance and Economics, 2012, pp. 31-42.
