Research On Interrelated Legal Issues About VAM In Private Equity

The Valuation Adjustment Mechanism(VAM)is a kind of investigation tool used proficiently abroad while less domestically. It refers to that oriented by concluding transactions, investors and factors temporarily cease the disputation on enterprise valuation, but substitute in the way of signing ancillary agreement or special item to deal on the future one: if the company achieves the objectives, the investor has to make a series of valuation adjustment to make up for the loss brought by lower valuation, or, the factor has to do the valuation adjustment work to make up for the loss by higher valuation. Comparatively, Chinese Private Equity Investment starts late, different national conditions and market supervision lead to not just a few problems during the usage of VAM. Three completely different judgments for the “First VAM Case” reflect its experimental characteristics in Chinese present market; meanwhile, people’s understanding about “VAM” is turning deeper and more rational. The progressive acceptance raises new hope and is worth expectation.Concerned with the interrelated legal issues about VAM in Private Equity, this paper is divided into three parts. The first part introduce the origin of Private Equity Investment, American economic liftoff history is quoted to illustrate the significance of policy encouragement and support following market demand, furthermore, the “First VAM Case” ”Win-win Case” and” Lose-lose Case” are enumerated to perform specific application of VAM in practice directly and positively affirm its mechanism of solving information asymmetry as well as enterprise motivation. The second part starts with the VAM analysis of its legal attribution, the rationality value is analyzed in terms of freedom of contract whiles the legitimacy value is in terms of party autonomy. This part slices through the present supervision attitude in practice, standing in the position of respecting freedom of contract and party autonomy, VAM is applicable on the premise of not running counter to the marketing principles. The third part turns orientation back to essential risk control, after risk constitution analysis on both investors and factors, integrating with current legislation; it provides suggestions for VAM supervision and application both in macroscopic and microscopic perspectives.