The Motivation And Effect Analysis Of Using VAM Agreement In The Merge And Acquisition Of New Classic Media By China Literature Group

In the context of the digital era,the cultural and media industry,which is carried by the internet,has rapidly developed and competition between enterprises has become increasingly fierce.To secure their industry position,leading companies in the industry continuously expand through mergers and acquisitions.However,due to information asymmetry,acquirers may have insufficient knowledge of the target company’s internal operations and future development trends,leading to frequent high-premium mergers and acquisition failures.In this situation,earn-out agreements are widely used as a tool to reduce the risks of mergers and acquisitions.However,the use of earn-out agreements has both advantages and disadvantages.It can lead to a win-win situation for both parties through scientifically reasonable term design or cause earn-out failures due to over-promised performance or too short earn-out periods,leading to a financial deadlock for both parties.Therefore,this article selects the typical case of the acquisition of New Classics Media by China Literature and analyzes the events of the initial signing of the earn-out agreement in 2018 and its subsequent modification in 2020.Firstly,starting from the basic theories and research status of corporate mergers and acquisitions and earn-out agreements,this article briefly summarizes the basic information of both parties,the acquisition process,and the timing of the acquisition.Secondly,it elaborates on the motives for the signing of the earn-out agreement between China Literature and New Classics Media,the specific terms of the initial signing of the earn-out agreement,and the modification of the earn-out agreement in 2020,as well as the completion status of the agreement.Thirdly,through event study,financial indicator method,and non-financial indicator method,this article analyzes the effects of the initial signing of the earn-out agreement in 2018 and its modification in 2020 between China Literature and New Classics Media.The results indicate that after the initial signing of the earn-out agreement,the short-term market performance was poor,and investors held a pessimistic attitude.The earn-out merger did not have a positive effect on China Literature’s operations.After the earn-out agreement was modified in 2020,taking into account the impact of the pandemic and other force majeure factors,the short-term market performance was better,and investors held a positive attitude.New Classics Media completed the earn-out performance for two consecutive years,which had a positive effect on China Literature’s operations.Finally,by summarizing and analyzing the case of China Literature’s earn-out acquisition of New Classics Media,this article provides relevant suggestions for earn-out mergers and acquisitions in the cultural and media industry,hoping to provide useful references for the deep integration between enterprises in the digital era.