Research On Effect Of Valuation Adjustment Mechanism In Mergers And Acquisition Of Listed Company

There are more and more merger-and-acquisition activities in China since 2013.Although the scale of both domestic and foreign transaction is very large,there are many related problems at the same time,including ‘high valuation' and ‘high commitment' in Valuation Adjustment Mechanism.The fundamental purpose is to resolve the valuation gap between the two sides of merger in order to promote M&A transaction negotiations.At the same time,the Valuation Adjustment Mechanism can also solve the adverse selection and moral hazard problems in the practice of M&A.However,in the current M&A projects in China from 2014 to 2019,it is common for companies to fail when using VAM.According to the performance report disclosed by listed companies in China in 2018 and 2019,the failure rate of VAM cases was as high as 40%.Such a high failure rate indicates that Chinese companies in the M&A projects still have many details need to improve.This article will discuss the risks and how to solve risk problems of VAM,based on the theory of Valuation Adjustment Mechanism,by analyzing the current status of domestic mergers and acquisitions and the application of VAM.Then the article will start a discussion on the actual use of VAM,and then conduct an empirical analysis through the M&A case about the company ‘Tianshan Bio' and ‘Elephant Advertising'.At last,making recommendations on the practical application of the VAM.The conclusion of this article is that when an enterprise is carrying out M&A activities,it should not underestimate the value of options on the VAM.At the same time,the VAM should have flexibility.The risk of the enterprise comes from various fundamental factors,so the due diligence is still an effective way to reduce adverse selection and moral hazard problems and should not rely too much on VAM to make risk management of target enterprise.Finally,for different roles,the focus is different.For the M&A side,it is necessary to fully evaluate the target company,formulate reasonable terms of the VAM and ensure the implementation effect of VAM.For the acquired side,it's necessary to fully play with the M&A side,correctly understand the risks of the VAM and choose the appropriate standard.From the capital market,it's necessary to formulate an effective regulatory punishment system to form the spirit of contract,give full play to the role of intermediary institutions,and improve the social public credit system.