Research On The Legal Attributes Of The Private Equity Valuation Adjustment Mechanism

The Valuation Adjustment Mechanism comes into our country associated with the Private Equity. It's a bi-directional mechanism with the aim of adjusting enterprise valuation. By using the research methods of case analysis, statistic analysis and theoretical analysis synthetically, it's clear that the mechanism has fairness and reasonability foundation which built up by its positive effects and the complementary relationship between investment premium and compensation claim. The legal attribute of it has direct influence on mechanism recognition and the choice of law. The current related researches have different arguments on the mechanism's right attribute, contract attribute and whether if it's an options respectively. The controversial situation has caused chaos in application and juridical practice of the mechanism directly. There has been some misunderstands about the relationship between the mechanism and the investment and financing agreement, and the relationship between conditional contract and aleatory contract in current related researches. On this basis, firstly, the mechanism's right attribute depends on the choice of investment instruments, if the investors choose to complete their investment by buying stock, the investment behavior and mechanism have ownership attribute; if the investors choose to complete their investment by buying convertible bond or preferred stock, the investment behavior and mechanism have mezzanine financing attribute. Secondary, for the mechanism's contract attribute, the analysis of its independence, validity, object content and theoretical bedrock demonstrates that the mechanism is part of the investment and financing agreement with relative independence, it is conditional clauses. Thirdly, based on differences between the mechanism and options in independence, definiteness of fulfillment content, range of risk and cost and game mode, the mechanism isn't an option. The Valuation Adjustment Mechanism is part of the investment and financing agreement which is different from options, it is conditional clauses with relative independence and ownership attribute or mezzanine financing attribute. That has positive application foreground and socio-economic value for the development of the Private Equity and the related judicial practice in our country.