Study On The Risks Of VAM Applied In Private Equity Financing Of Small And Medium-sized Enterprises

Valuation Adjustment Mechanism(VAM)was widely used with the rapid expansion of the private equity industry in recent years,but it has a low success rate in domestic market,and for this reason,VAM was called “gambling agreement”.This paper chooses the VAM between RongFeng JiuDing Investment and Kamtat Lighting Technology Co.,Ltd from 2012 to 2014 as a typical case study.This article analyses the value of VAM and the financing side’s risks based on real option theory,sustainable growth model and other relevant theory.The main conclusions are as follows:(1)The VAM between RongFeng JiuDing Investment and Kamtat Lighting Technology Co.,Ltd is a Protective Put Option in essence,the RongFeng JiuDing Investment is the option buyer and the Kamtat Lighting Technology Co.,Ltd is option seller.(2)This paper deduces the pricing formula of the VAM by using the Martingale Pricing Theory and calculates the value of the VAM is 18.13 million yuan after estimating the annual volatility.(3)The Kamtat Lighting Technology Co.,Ltd is the financing side and option seller,it was faced with valuation risk,financial risk,operational risk and legal risk in process,and the valuation risk and financial risk are key risks.(4)In order to solve the key risks,this paper presents two methods: improving the strength of valuation adjustment and using multistage investment method.(5)This paper also provides preventive measures in different periods for financing side,so as to construct a relative perfect risk prevention system for financing side.