The Research Of Valuation Adjustment Mechanism In Private Equity Investment

Valuation adjustment mechanism is a common financial tool in the private equity area. During the capital investment in western world, almost every financing case will used the valuation adjustment mechanism, the investment side and the financing side could not fully determine the future prospects of the finance companies, in order to eliminate differences and facilitate transactions, they often agreed to adjust the rights and obligations according to the future performance. Comparing with foreign capital markets, the capital market of China is not developed, the enterprise is facing a lot of difficulties in breaking the capital bottleneck, so the private equity funds in our country has great potential. Chinese law has no clear regulation to the valuation adjustment mechanism; so many arguments still exist.This paper will review several cases such as Haifu case, Mengniu Dairy signed with Morgan, Feihe signed with Sequoia, to confirm the necessity of the valuation adjustment mechanism in China in both economic and law perspective.And according to the current controversy in theory and practice field, the author thinks that both the main body and the rights and obligations of the valuation adjustment mechanism should be the controlling shareholder or actual controller of the company, which is the most reasonable theory that could guarantee the valuation adjustment mechanism.The legal attribute of the valuation adjustment mechanism has been debated between the field of theory and practice. Through the comparison with the similar contract, the author thinks that the valuation adjustment mechanism is an aleatory contract whose existence is legitimate. The relevant system of the valuation adjustment mechanism, such as the system of preference stock, IPO exit mechanism, information disclosure mechanism have conflict with current law and regulations, this paper analyzes the contents of the valuation adjustment mechanism and its conflicted part of the legal system, in order to develop the risk prevention measures from the macro and micro aspects.The macro risk prevention measure mainly include confirming the position of the named contract in the valuation adjustment mechanism, facilitating making the standard of the contract law in China, setting up offshore company and avoiding risk. While the micro risks prevention measure make preventive measures to investment side and financing side. That would play a positive role in the valuation adjustment mechanism, and promote the economic development of our country.