The Research On VAM In Private Equity Investment

Currently, valuation adjustment mechanism（VAM）, which are often used inprivate equity investments, are subsidiary agreements for investment agreement orsubsidiary provisions of investment agreement. In fact the purpose of VAM is to solvethe disputes which result from the different opinions on company valuation betweeninvestors and investees, when investors plan to invest the company. In essence,according to the provisions of company’s future performance in the agreement, basedon the actual completion of the company’s performance, the valuation of the companyis adjusted in order to safeguard interests of both investor and investee bycompensating the loss.The paper is divided into four parts. In the paper, the legal nature of VAM, thelegitimacy of VAM, the legal obstacles of VAM and measures to prevent risks areanalyzed separately, in order to guide the application in practice.Part1introduces some new cases in practice in order to explore the legal natureof VAM and then think it deeply.Part2analyzes the legal nature of the agreement. Above all, to determine thedefinition, the basic meaning and legal characteristics of VAM; Second, to analyze thelegal relationship of VAM, including the study of legal subjects, legal objects andlegal content of VAM; Finally, part2focuses on the analysis of the legal nature of VAM, and concludes that VAM is conditional contract rather than fortunate contract.Part3focuses on the legality of VAM, the paper confirms the legality of VAMrespectively from positive and negative angles, meanwhile, the paper points out somelegal obstacles which are encountered in the use of VAM in our legal practice.Part4analyzes how to prevent the legal risks of VAM. Author makerecommendations from the macro and micro level for the prevention and control oflegal risks in order to make better use of VAM by investors and investees.