Research On The Application Of Vam In Mergers And Acquisitions Of Listed Companies

In the recent years,the domestic M&A market has become increasingly popular.The scale of merger and acquisition transactions of listed companies increased from 1.45 trillion to 2.56 trillion during the period from 2014 to 2018.It is expected to have a continuous growth in the future.However,with the continuous expansion of the scale of concurrent M&A transactions,the problem of information asymmetry is getting worse.This has also led to the latest revision of the "Major Asset Restructuring Management of Listed Companies in China" by the China Securities Regulatory Commission in 2019,and it clearly stated that,according to the major asset restructuring based on future earnings,the listed company should disclose the difference between the actual profit and the predicted profit.The agreement should be replaced by the actual situation of uncompleted forecasting profit for the both parties.Affected by the trends of market and the guidance of regulatory agencies,it has become pretty common for Chinese listed companies to sign Valuation Adjustment Mechanism(VAM)in mergers and acquisitions.As a valuation adjustment mechanism,the agreement can adjust the valuation of the target of the merger and acquisition,effectively alleviating the information asymmetry problem between the two parties.Both parties of the merger and acquisition signed an agreement during the merger,and set corresponding clauses and compensation mechanisms.It can form incentives and constraints on the management of enterprises,which is more conducive to the integrated development of the two companies after the merger is completed.Reviewing Chinese M&A market in recent years,there have been endless cases of failures,although VAM widely used in corporate mergers and acquisitions.The agreement has the features of high risks and high returns.If it is used properly,it can play an active role in mergers and acquisitions and reorganization,and promote the development of companies;if it is used unreasonable,it will lead to aseries of risks and ultimately result in plenty of negative effects.How to effectively apply VAM has become a focus issue that Chinese enterprises ought to pay more attention to when carrying out M&A transactions.Reviewing the past M&A transactions about Chinese A shares,when the parties signed VAM,generally,the companies only chose the overall net profit of the target company as the indicator,and it is rare to choose multiple indicators.This article takes the case of Inovance Technology M&A BST Electric as the research object and takes t agreement of VAM signed by both parties as the entry point,combining the relevant theories of VAM,introducing the content and uniqueness of the agreement.It also analyzes the motivations of both parties in the merger and acquisition to apply the agreement.In addition,the selection of indicators of VAM in this merger is studied and then the article analyzes the prevention of potential risks in terms of the design of the agreement.Finally,it puts forward various suggestions for improving the application of VAM in corporate mergers and acquisitions.