Research On The Risk Of Vam In M&A

With the development of economy,mergers and acquisitions activities are increasing.The risk caused by information asymmetry in M&A is ubiquitous,and the premium risk often appears.In this context,to protect their own interests,the acquirer use the VAM to restrain the high premium behavior of the acquired in the valuation.But the VAM is a double-edged sword,it breeds new risks while protecting the information disadvantage of the buyer.If target enterprise fails to achieve the promised profit during the bet period,for the acquirer,the compensation of post-merger valuation adjustment still cannot make up for the loss of its market valuation and will have a negative impact on the operation and image of company.And for the acquired,the shareholder will lose the previously recognized income after the valuation adjustment,face the loss of assets firectly,and have a greater negative impact on the market.At present,only 37% of the domestic enterpeises have reached the standard and more than 60% of them haven't reach the expected target.VAM has not played its role well in our country,therefore,it is very urgent and necessary to study and analyze the risk factors that affect the application effect of the VAM.This paper analyzes the VAM between Xinri Hengli and Boya stem cell,and finds that the two parties haven't reach the gambling target,and in the process,the connected transactions are occurred,they will affect the authenticity and validity of the valuation adjustment,which will ultimately cause the adjustment of the valuation and have a large adverse effect on the merger and acquisition parties.This paper uses literature research,case analysis and comparative analysis.Based on the literature research,the risk of VAM between two enterprises are discussed and studied in depth.According to the analysis,this paper believes that the main risks leading to this situation lie in the impreciseness of the due diligence,the inaccuracy of the valuation method and the unreasonable setting of commitment.Based on further analysis of the two parties' behavior,it found that out of consideration of their own interests,both parties have the motivation to set high performance targets,resulting in the overvaluation and the failure of the bet.In addition,a single net profit indicator will cause the acquired to affect the effectiveness of valuation adjustment in the way of increasing non-main business income,and the principal-agent relationship between the two parties is also the risk factor for the failure of the bet agreement.Combined with the research and analysis of the risk implied in the case of Xinri Hengli,this paper considers that the listed companies use VAM,should:(1)define the substance of the gambling agreement and its application basis,and pay full attention to the role of due diligence;(2)the premise to use valuation adjustment is to determine the enterprise value reasonably and avoid valuation bubble and high premium;(3)set the performance goals more reasonably and diversify the gambling indicators;(4)strengthen the control during the gambling period;(5)bind the interests of both parties through cross-shareholding;(6)improve the regulatory system and strengthening the role of regulatory agencies.The analysis and conclusion of VAM between Xinri Hengli and Boya stem cell in this paper has enriched the existing research on valuation adjustment mechanism cases which can also provide references for other companies to make better and more effective use of VAM.It has certain practical significance.