Research On The Performance Consequences Of Hong Tao Decoration's Application Of Valuation Adjustment Mechanism In Merge And Acquisition Transaction

In recent years,the operating performance of listed companies in traditional industries has been declining,and the profit margin of the industry has been shrinking.In order to achieve sustainable development,the company actively explores new business models.Mergers and acquisitions,as an important means of expanding business operations and business transformation,have become a fast track for further development of listed companies in traditional industries.With the continuous development of domestic mergers and acquisitions,valuation adjustment mechanism(VAM)has been widely used by both parties in the transaction because it has the advantages of reducing the asymmetry of transaction information and improving the operating performance of the target company.However,as VAM gradually expires,failure of VAM occur one after another,and arbitration lawsuits due to performance compensation continue to occur.This phenomenon causes losses to the acquirer and small and medium shareholders,and also affects the stable development of China's capital market.In September 2015,HongTao Decoration announced the purchase of 85% stake in Xueersen,and signed a three-year valuation adjustment agreement with Xueersen.However,during the three-year commitment period,Xueersen did not meet performance targets.This article takes Hongtao's VAM in merge and acquisition transaction as the research object,and uses the event research method,financial index analysis method and factor analysis method to study the economic consequences of HongTao.The research results show that the economic consequences of HongTao's VAM are not ideal.First,in terms of market effects,neither the signing of the agreement nor the expiry of the agreement has brought positive market response to HongTao.Secondly,after analyzing the long-term financial performance,it was found that Hong Tao's financial performance declined significantly: Since 2015,after the company used VAM,except for the small decrease in asset operation and debt service ability,all other financial efficiency indicators and development ability indicators have declined significantly.In addition,this transaction are related to the future development planning of the company's second major business vocational educationand training business.The unsatisfactory effect of VAM will also have a long-term impact on the company's future strategic development.Through case analysis,it is found that the reasons for unsatisfactory effect of VAM include insufficient due diligence before the signing of the agreement,deviating performance target settings,unreasonable methods of calculating compensation amounts,and failure to strictly abide by the agreement during the implementation process.Based on the above analysis,this article puts forward relevant suggestions from four aspects: preliminary investigation and evaluation,design of the agreement,implementation of subsequent agreements,and improvement of related policies,and it is hoped that it can provide reference for listed companies planning to use VAM.