Research On Risk And Prevention Of Valuation Adjustment Mechanism Applied In M&A

As an important means of optimizing resource allocation in the capital market,mergers and acquisitions play an important role in promoting the upgrading of industrial structure and deepening corporate reform.2020 is a critical period for the adjustment of Chinese macroeconomic structure.The sudden epidemic has seriously affected the production and operation of enterprises.At this time,the regulatory authorities have successively introduced favorable policies to "lighten the burden" of M&A,making them the preferred item for companies seeking new development opportunities.Valuation Adjustment Mechanism is widely used in the M&A market.However,its practical application has repeatedly encountered drawbacks,such as performance fraud,profit transmission,goodwill impairment and so on.In 2016,the China Securities Regulatory Commission clearly stated that the party who promised the performance of the VAM cannot change the performance compensation commitments.In 2019,the Supreme People’s Court issued the "Minutes of the National Court Commercial Trial Work Conference" to clarify the judgment of share and cash compensation.Regulatory policies related to the VAM have been continuously improved.Therefore,it is meaningful to explore the potential risks of the VAM in the M&A,and establish a corresponding risk prevention and control system.Based on the above background,this article conducts an in-depth study on Tianguang Zhongmao’s merger and acquisition,analyzes the internal mechanism of risk prevention of the VAM,adopts financial analysis method,event research method,and industry comparative analysis method to explore the application effects and potential risks of the VAM,and constructs a "three-tier and three-stage" risk prevention and control system.The "three-tier and three-stage" risk prevention system is as follows:(1)Target layer.The prevention and control target should be formulated in combination with the corporate strategy and the purpose of the VAM under legal premise.(2)Prevention and control layer.First of all,the acquirer must carefully select the target company,do a good job of preliminary due diligence,and fully examine the competitiveness of the target company and the business model and capital needs of both parties.It is a good idea to use the valuation methods scientifically and set reasonable period.Second,both parties should set realistic and flexible performance goals,and agree on measures to ensure the smooth implementation of performance compensation.Regulatory departments emphasize business undertakings for intermediaries,and increase the cost of performance failure.Finally,the company should strictly control the proportion of goodwill,continuously pay attention to the authenticity of the target company’s performance,and improve the internal governance structure of the company.(3)Basic layer.The basis of prevention and control mainly refers to the environmental basis,such as corporate values,corporate culture,and internal control system,etc.The research result of this article is meaningful to regulators,listed companies,intermediaries and investors.(1)Provide a reference for regulators to increase supervision and accountability of the company’s VAM’s content and performance capabilities;(2)Provide guidance for listed companies to build a relatively complete risk prevention and control system;(3)Help intermediaries maintain their independence in the M&A and play a continuous supervisory role;(4)Remind investors to fully consider the risk of the VAM and make investment decisions cautiously and objectively.