Providing credit financing for M&A transactions is a common and important business of foreign banks. Commercial banks join syndicated loans under the leadership of investment banks, and some banks directly act as financial advisers for M&A transactions, and participate in the whole process of transactions while providing loans. For banks, M&A loans are different from ordinary loans, which are not based on the borrower's solvency, but on the solvency of the merged object. Because of the particularity of M&A loan, its return is often higher than that of ordinary loans. Moreover, the homogenization competition of commercial banks in China is serious. If we continue to develop, it is an important strategy to reduce the spread business and increase the income of intermediary business. Therefore, many commercial banks vigorously expand their investment banking business and change their core competitiveness from balance sheet competition to talent and service team competition. M&A loan is only a one-time comprehensive scheme to provide customers with commercial banks and investment banks. Finally, banks also hope to diversify their assets, from traditional land reserve loans, developer loans and mortgage loans related to real estate to other economic fields, including local and foreign currency loans for cross-border mergers and acquisitions, so as to diversify their asset portfolios and disperse systemic risks.
Second, the use of M&A loan interest tax credit to create value
Theoretically, M&A with bank loans can improve the acquirer's return on investment (especially for private equity funds), that is, leverage effect. Based on MM theory, under the assumption of perfecting the capital market, the value of a company should not be affected by financial leverage, that is, the market value of any company has nothing to do with its capital structure, and the market value of an enterprise is only determined by the present value level of expected income. However, according to MM theory with corporate tax, the tax barrier function of M&A loan will improve the enterprise value. Considering the corporate tax, debt financing has an important advantage, because the debt interest paid by the company can offset the taxable amount, while cash dividends and retained earnings cannot. In this way, when there is corporate tax, the value of the company is positively related to its debt. Company value = company value of full equity financing+present value of interest tax-saving income.
The general assumption is that the risk of interest tax savings income is the same as the risk of interest expenditure, so it can be discounted by the expected rate of return of creditors (that is, the cost of debt). After calculation, the present value of interest tax revenue is equal to the product of liabilities and enterprise income tax. Since the tax-saving income increases with the increase of debt, the company can increase its total cash flow and increase its value by exchanging debt for shares.
In practice, large international stock M&A funds often adopt the most advanced tax planning, on the one hand, use M&A to increase the transaction scale, on the other hand, enjoy interest tax credit to increase returns.
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