Analysis On The Risk Of VAM In M&A

As my country’s economy has entered a new normal of development,the pace of upgrading of various industries has accelerated.In order to cope with the complex market competition environment,enterprises have chosen to carry out M&A in order to achieve development and growth.However,the effect of M&A in China is not ideal.Only a few enterprises perform well after the implementation of M&A,and most of the enterprises have not achieved the expected operation effect after the implementation of M&A.The main reason for the unsatisfactory effect of M&A is that there is information asymmetry between the two sides of M&A,and the target enterprise has much more information than the acquirer.In the implementation of M&A,the target enterprise uses the information advantage to hide its bad business information from the acquirer,resulting in the damage to the interests of the acquirer.In order to reduce the risk of M&A caused by information asymmetry,China’s capital market has begun to introduce VAM.In theory,the VAM can effectively protect the interests of both parties and promote the smooth development of M&A transactions.However,in the practical application of the VAM,the phenomena of high valuation,high commitment and high goodwill emerge one after another,and the disputes such as performance breach,performance manipulation,inability to compensate and refusal to compensate occur frequently,which eventually lead to heavy losses on both sides of the M&A,and the failure of the M&A.It can be seen that the improper use of the VAM may bring greater risks to M&A.Therefore,it is necessary to conduct research on the risk of VAM in M&A,so as to better help enterprises make rational use of VAM in M&A and achieve win-win situation for both parties.This thesis selects the application of VAM in Donly’s acquisition of Everich as the case study.The M&A is a typical cross-industry M&A.Compared with other types of M&A,the degree of information asymmetry in cross-industry M&A is higher,which makes the application of VAM in cross-industry M&A more extensive.But at the same time,this also makes the phenomenon of high valuation,high commitment and high goodwill in cross-industry M&A more frequent,and the failure rate of gambling is higher.Therefore,it is more typical to carry out research on the risk of VAM around this case,and the risk prevention and control measures of VAM obtained are also more universal.This thesis adopts the combination of theoretical research and case analysis to study the risk of VAM in enterprise M&A.In the literature research part,it summarizes the research results of domestic and foreign scholars on the risk of VAM in M&A,and expounds the theories related to the risk of VAM in M&A,which lays a theoretical foundation for case analysis.In the case analysis part,the application of VAM in Donly’s Acquisition of Everich is selected as the case study object.Firstly,it introduces the basic situation of M&A,as well as the signing content and implementation of the VAM.Secondly,based on the whole process of signing the VAM between Donly and Everich,from the three stages of preparation,formulation and implementation of the VAM,it comprehensively analyzes the risks of the VAM,and deeply excavates the causes of the risks of the VAM.Finally,in view of the risk and risk causes in each stage of the signing of VAM in the case,this thesis believes that enterprises can prevent the risks of VAM in M&A from the following three aspects: In the preparation stage of VAM,the enterprise should select the appropriate target enterprise and sign the VAM carefully.At the same time,the enterprise shall also carry out standardized due diligence and have a comprehensive understanding of the target enterprise.In the formulation stage of VAM,the enterprise shall reasonably evaluate the value of the target enterprise and beware of blind optimism.At the same time,the enterprise should also set performance commitment rationally to avoid high performance pressure.In the implementation stage of VAM,the enterprise shall strengthen the restriction on the behavior of the management of the target enterprise to ensure the performance quality.At the same time,the enterprise should also pay attention to the integrated management of the target enterprise to improve business performance.