Research On The Risk Of Valuation Adjustment Mechanism With Highpremium M&A In Cultural Industry

In recent years,the development of cultural industry has been strongly supported by national policies,new business models continue to emerge,and merger and acquisition market is very active.However,cultural industry has special nature.It is difficult to measure the value of enterprises in this industry,resulting in high-premium mergers and acquisitions.And the unsubstantial economy is more vulnerable to external shocks,the uncertainty of future performance is higher.In order to reduce the transaction risk and the uncertainty of future returns,both parties of cultural industry mergers and acquisitions often introduce valuation adjustment mechanism.However,the characteristics of cultural industry and the wave of highpremium mergers and acquisitions make it more prone to high performance commitments in the matching agreements,which makes the valuation adjustment mechanism more likely to fail.Therefore,enterprises in the cultural industry should be more cautious about the risks they may face when using valuation adjustment mechanism when carrying out high-premium mergers and acquisitions.This paper chooses the case of China Literature Group’s acquisition of New Classic Media for specific analysis.China Literature Group using valuation adjustment mechanism can be divided into two stages.The first stage is the initial valuation adjustment mechanism proposed in the beginning of the merger and acquisition agreement,which has the characteristics of high performance promise.The second stage is the new valuation adjustment mechanism after New Classic Media have not been able to reach the promise.The case of the process is relatively complex,has certain value of analysis.After analysis,this paper found that China Literature group mainly suffers from three kinds of financial risks in the event: unreasonable setting of betting clauses,group performance fluctuation hindering the implementation of valuation adjustment mechanism,and influence of the announcement on stock market performance,as well as two kinds of non-financial risks: macro environmental shock and group decision imbalance.The risk factors that have a short-term impact on the whole process include the decline of short-term solvency and the announcement of valuation adjustment mechanism events,while the risk factors that have a long-term impact include the setting of betting clauses,the decline of long-term operating capacity,profitability and growth capacity,the impact of macro environment and the imbalance of group decision-making.Financial risk mainly affects enterprises negatively through high price and performance standard,group deterioration of financial indicators to restrict its support for New Classic Medea and the short-term decline of the stock market,while non-financial risk mainly threatens enterprises in the macro environment and strategic decision-making.And from a single case to the whole industry,the corresponding suggestions of rational use of valuation adjustment mechanism are given,including financial suggestions such as setting a variety of standards in valuation adjustment mechanism,balancing investment between new and old businesses,and non-financial suggestions such as paying more attention to industry dynamics and emphasizing the disclosure of positive information.The innovation of this paper lies in paying attention to the phenomenon of "high-premium M&A",which is more extreme in premium M&A and more common in cultural industry.Besides,about the risk of valuation adjustment mechanism,this research emphasis is not only limited to the financial risk,but also covers the non-financial risk with specific data and more comprehensive angle,which can help those enterprises make decisions in a comprehensive way and use valuation adjustment mechanism more rational in high-premium M&A to reduce the risks.