The Risk Prevention And Control System Research Of Valuation Adjustment Mechanism In M&A Based On A Company

As China’s economy is in transition to technical economic, venture capital, mergers and acquisitions are applied in the great demand of environment. Now, the "trust" is in the lower level between the two sides of merger, mergers and acquisitions with high premium rates, so the information’s asymmetry is increasing between two sides, resulting in the acquisition risk is also increased.In order to cope with the high risk premium, the Valuation Adjustment Mechanism is applied. After the Valuation Adjustment Mechanism entered in china in2003, the use of it is expanding. Many enterprises successfully applied the Valuation Adjustment Mechanism, obtained rapidly development, but there is also failed cases, resulting in litigation, disputes equity, lose the control. Studies have shown that the Valuation Adjustment Mechanism’s failure rate as high as63%, it does not play a role to cope with the uncertainty of operating performance and asymmetry of information, so analyzing the risk factors of Valuation Adjustment Mechanism, establishing the appropriate risk control system is necessary and urgent. Establishing the risk control system helps to improve its success rate, which will help it to play a role in preventing acquisitions risk, initial valuation adjustment and balancing the demands of both acquisitions interests, promoting the healthy development of China’s M&A market.This paper adopts case study method to analyze Valuation Adjustment Mechanism risk and control problem. First, this paper introduces the basic situation of case studies, and then explains the purpose and significance. Then the relevant concepts and research status of Valuation Adjustment Mechanism are described. Secondly, the paper selects two cases in A Company’ series of Valuation Adjustment Mechanism cases, to analysis the motivation of the two sides who signed the Valuation Adjustment Mechanism. Then analyzing the risk in the Valuation Adjustment Mechanism. Finally, in the combined knowledge base of other cases, to work out a risk control system for Valuation Adjustment Mechanism.This paper finds out the following key risk factors of Valuation Adjustment Mechanism:valuation risk, performance goals risk, competitiveness risk, management behavior risk, M&A targets risk, market risk. On the basis of the studies, this paper establishes a three-stage risk control system.(1)Before the Valuation Adjustment Mechanism:for the acquirer need to analyze market developments and industry, selecting the appropriate acquisition targets. For the other side need to weigh the risks, to determine whether it is necessary to sign an agreement.(2) The signing of the Valuation Adjustment Mechanism:First, choosing a reasonable valuation method to determine a reasonable premium level; secondly to set multi-level standard; and to determine the moderate performance standards.(3) After the Valuation Adjustment Mechanism:the management behavior should be a long-term; to improve the management level, and enhance core competitiveness.