A Study On The Risks And Preventive Solution Of VAM In M&A

In recent years,with the accelerating pace of industrial restructuring in China,mergers and acquisitions(M&A)activity has become increasingly active,the number and scale of M&A of listed companies are increasing rapidly.It is very important to determine the value of the target enterprise in the M&A activity.However,due to the information asymmetry and uncertainty of the future benefit,how to determine the valuation of the enterprise has been plagued with the theory and practice,and the valuation adjustment mechanism(VAM)results from this valuation predicament.The valuation adjustment mechanism adjusts the original valuation based on the uncertainty of the future situation of the enterprise.It reduces the valuation premium,encourages managers and improves the quality of the company.According to the statistics,now the use of VAM in the mergers of listed companies has been as high as 80% or more.But with the commitment deadline approaching,events not up to standard frequently outbreak,litigation disputes and other things emerge in an endless stream.The VAM begins to highlight the boosting high valuation,operating short-sighted,financial fraud and other defects.It can be seen that the gambling agreement is a double-edged sword.It is very urgent and necessary to analyze the potential risks in the M&A and put forward the corresponding preventive measures.This paper first introduces the connotation and theoretical basis of the valuation adjustment mechanism by studying the theory and case.The VAM is used to cope with the information asymmetry and future uncertainty.It can reduce the risk of enterprise valuation and encourage the mangers.But it also brings a lot of risks such as the relaxation of pre-survey,the angulation of valuation pricing,the hinder of M&A,short-sighted management behavior and the ineffective agreements.Then,taking two typical merger cases of Jinli Science and Shanghai Green New as examples,this paper analyzes the risks that may arise in the merger with the VAM.Finally,based on the advanced viewpoints of China and the West and the actual situation of our country,the author puts forward the corresponding strategies in three ways.At the strategic level,the users should consider the applicability of the valuation adjustment mechanism.The diversification mergers are more suitable for the use of the VAM when the degree of information asymmetry is great.Once we determine to use it,it would be based on the careful and reasonable valuation.It will be another guarantee rather than an excuse to be lazy.In the course of application,we should set the valuation adjustment mechanism reasonably and consider the standard design,mode selection and responsibility division of VAM.The acquisition side needs to pay more attention to the reasonable control of the target enterprise.In addition,this article also suggests that the relevant agencies should improve the legal norms and regulatory system of VAM quickly so that the valuation adjustment mechanism can be more useful in the enterprise merger and acquisition.