An Analysis Of The Application Of Gambling Agreement In Private Equity Financing

Private equity originated in the United States.It has become the third largest financing method.As is known to all, Apple company, Goolge company and Facebook company and other famous international enterprises, in the initial stage of the venture has been favored by private equity.The vigorous development of foreign private equity has an important influence on the development of private equity in China.With the establishment of China’s economic rapid development and national policies and regulations, a large number of well-known foreign investment companies, such as Morgan Stanley, ACTIS, Goldman Sachs, Ding Hui influx of the Chinese market.At the same time, China’s local private equity institutions continue to set up.According to the data show that in 2015, China’s private equity funds raised the amount of $111752000000.As a special clause in the contract of private equity investment, VAM is used to adjust the value of the enterprise in the future.A large number of private equity investment in unlisted companies, it is difficult to estimate the enterprise value, and future business conditions are difficult to predict.Investment and financing both sides hope that their have a chance to adjust the valuation after the signing of the contract.In addition, investors are mainly concerned about the return on capital and capital recovery period, the financing side is more concerned about the benefit of the business enterprise.Due to the differences between the target of the two sides, it may affect the investor’s income and increase investment risk.Therefore, the two sides agreed in VAM:when the enterprise reached the agreed terms, the investor to give enterprise a certain incentive; if the enterprise does not meet the agreed conditions, then the enterprise needs to pay a certain price to the investor.For he enterprise,this clause deliver information to the investment fund, in order to prove that the financing of the enterprise itself has a high profitability.At the same time, it can also encourage the financing side to reach the goal of VAM.In 2003,Mengniu and Morgan Stanley and other private investors signed the VAM, and Mengniu achieve the rapid development.Inspired by the success of Mengniu, many companies have joined the ranks of VAM.Once failed, the financing side will pay a painful price.The enterprise may face huge financial pressure or be acquired and merged.Under this background, how to apply VAM rationally on the private equity financing?This issue still needs to be further studied and discussed from theory and practice.This paper describes the private equity and the VAM.This paper analyzes the necessity of the signing of the agreement, and expounds the development status of the private equity and the agreement in our country.In the case of KingSun,I analyzes the motivation, path to achieve the performance indicators,the application mechanism and risk.At the end of this paper, it summarizes the problems existing in Chinese VAm and puts forward the corresponding countermeasures.