Study On The Risk And Control Of The Valuation Adjustment Mechanism In "PE"

Private equity investment as a new means of financing not only for enterprises to solve the financing difficulties,but also can directly promote the rapid growth of the enterprise and development by experience in business management and capital operation ability.Therefore,private equity investment has become an important means of financing in western developed countries.With China's sustained and rapid economic growth and financial market reform and opening,a large number of private equity investment funds into the financial market of our country in various ways,by investing in start-ups Chinese huge gains obtained and has led to the development of China's domestic private equity investment.Although the rapid development of private equity investment can bring high returns for investors,but with high return is the risk of asymmetric information and the principal-agent problem.In order to alleviate the information asymmetry and the principal-agent problem,private equity investors often require financing enterprises to sign the "VAM"."VAM" as a valuation adjustment agreement used in western countries in economic activity is relatively mature,on the one hand can alleviate the information asymmetry and the enterprise valuation is reasonable,on the other hand can play the role of incentives for the management of enterprises.But the failure rate of the"VAM" in China is as high as 63%,failure of gambling business,most losses,or be acquired or management was forced to relinquish control,or related to the transfer of its assets on the cheap access to liquidity."VAM" is a double-edged sword,the risk in the process of using the "VAM"can not be ignored.Firstly,we must agree the "VAM" is not a zero sum game.For both of investors and enterprises,they have a same goal-to achieve a win-win,which is to allow enterprises to win the bet.Because the enterprise win brought to achieve performance objectives of the enterprise value is much larger than the investors win.Therefore,in order to achieve a win-win agreement,we need to analysis the risk in the use of the"VAM" in process and reduce the risk to achieve a win-win situation.This article is under-the background of rapid development in private equity investment in China,analysis the risk and risk control of the "VAM" by selecting a typical failure case-Taizinai and provide some suggestions.There are multiple perspectives in the analysis of the case,market environment,motivation and content,strategic cooperation and management behavior.We found the industry environment conducive to growth,both sides have a blind in signing the "VAM",content of"VAM" is not reasonable,lack of depth cooperation in the strategic between investors and enterprises,short-term behavior in Taizinai management These risks lead to the fail of the "VAM".According to the case of Taizinai,some control suggestions on the"VAM "was proposed.Firstly,both sides should be cautious to sign "VAM",second reasonable determination of the standard,two sides should strengthen the strategic cooperation to improve the management of enterprises after signing the "VAM",finally grasp a reasonable opportunity to withdraw the "VAM".