The Factors Of The Pricing Deviation Of VAM In The M&A

In the process of merger and acquisitions(M&A)of the listed company,in order to restrain the behavior of the acquired party after the M&A,the two parties introduce a VAM,also known as Valuation Adjustment Mechanism(VAM),to stipulate the performance for the acquired party in the next few years.If the performance fails to reach the stipulated performance,the acquired party shall compensate with cash or shares.This paper mainly discusses the pricing deviation of VAM and its influencing factors.In view of the nature of vesting options,VAM is integrated into a two-valued option.The Cox-Ross-Rubinstein model is introduced to measure the value of VAM.The initial price S and the strike price X of the option shall conform to Geometric Brownian Motion.In this paper,the target of profit or sales revenue and the actual profit or sales revenue multiplied by the current year's price/earnings ratio or price-to-sales ratio are converted into the amount of "stock price × number of shares",which conforms to Geometric Brownian Motion.For those with an duration greater than 1 year,the annual agreement value shall be calculated according to the profits.The present value of compound interest shall be calculated by regarding the interest rate of one-year Treasury bonds in target year as the risk-free interest rate.At the same time,the initial investing fund stipulated in VAM is regarded as the transaction price.By calculating the proportion of the value of VAM to the value of the transaction,the deviation degree of pricing is obtained.The deviation results show that a certain deviation exists in the pricing of each VAM,which reflects that the risk premium of listed companies in the process of M&A is too high.Refining reasons for the deviation,the model error,enterprise internal resources and the character,the external environment such as industry environment and regional environment,the agreement content such as way of M&A,purpose of M&A,payment and compensation mode.The multiple regression model is established on those pricing deviation factor.The results show that the model error caused by in-price option will weaken the value deviation.The deviation is higher in M&A of listed companies with state-owned enterprises.Compared with decentralized enterprises,centralized enterprises have a lower deviation degree.The average rate of return in the previous year was higher have a higher deviation.Acquirers with good profitability have a higher deviation when signing a bet agreement.The degree ofdeviation is lower in the M&A of heavy asset enterprises.In terms of the content of VAM,the proportion of transferred equity in M&A is negatively correlated with the deviation degree of the VAM.M&A which tend to issue shares to buy assets will have a lower degree of deviation.The payment method is in cash,and the deviation degree is lower.Overall,the price deviation factors listed in this paper explain only 30 percent of the pricing deviation.The unexplained part may come from the acquirer's overprotection of its own interests.Above results indicate that the VAM exists significant price deviating from the value.The traditional industry company,with state-owned enterprises composition,heavy assets,asset-liability ratio is low and high return on assets,have lower deviation.Tend to purchase of assets through issuing shares,payment contained in cash,its pricing deviation degree is low.