Rresearch On The Prevention Of Goodwill Impairment Risk By VAM

The Chinese economy has entered a new normal,and industrial transformation and upgrading have entered a critical period.In the fierce market competition,many traditional industries with low added value enter a period of decline and are gradually eliminated by the market,while a large number of strategic emerging industries rely on new technologies to rise and develop rapidly.In this context,in order to seek better development opportunities,many traditional manufacturing enterprises adopt M&A for transformation and expansion.Therefore,M&A transactions in Chinese market are increasingly active.Both the number of M&A transactions and the amount of single M&A show a gusher uptrend.However,due to the overvaluation of the target enterprise,information asymmetry between the two parties and other reasons,the acquirer often has a merger premium,which is easy to lead to a huge amount of goodwill accumulation,followed by the risk of goodwill impairment.So as to guard against risk of goodwill impairment in M&A,more and more enterprises choose to sign the VAM when M&A.In theory,the VAM can reduce the degree of information asymmetry between the two sides of the M&A,form an incentive effect on the target enterprise,protect the rights and interests of both sides,and finally realize the "win-win" of the enterprise.However,in the practical application of the VAM,the case of failure caused by performance failure is everywhere.In fact,whether the VAM can effectively prevent the risk of goodwill impairment depends largely on the design of the terms of the VAM.How to scientifically and effectively design the VAM to prevent the risk of goodwill impairment caused by high premium M&A has become an urgent problem for M&A companies to solve.This thesis chooses the M&A between Techsem and Coastspring as a case study.The M&A between Techsem and Coastspring belongs to cross-border M&A.Compared with other types of M&A,the risk of information asymmetry is more prominent.In addition,Coastspring is a typical asset-light enterprise,which usually adopts the income method for valuation and is more prone to high valuation and premium phenomenon,and the risk of goodwill impairment is more prominent.The VAM is more frequently used in the M&A of cross-industry or asset-light enterprises,so it is more typical and universal to study this case.Finally,Techsem and Coastspring have completed the performance bet in 2020,and the relevant data have been published,which can make a more comprehensive and objective analysis on the prevention of goodwill impairment risk caused by the VAM.This thesis uses the method of combining theoretical research and case study to study the effectiveness of the VAM to prevent the risk of goodwill impairment.In the theoretical research part,literature review of scholars at home and abroad in the field of goodwill impairment risk and the VAM is mainly summarized,and correlative theories are defined to offer basic academic support for the case analysis of this thesis.In the case introduction section,starting from specific cases,introduce the basic information of Techsem and Coastspring.Then,the motivation and plan of the merger are expounded.Finally,it introduces the implementation of the VAM and the goodwill impairment.In the part of case analysis,firstly,the causes of the goodwill impairment risk of Techsem are thoroughly analyzed,and elaborated from three perspectives.Secondly,the article analyzes the clause design of the VAM from four aspects: performance commitment design,compensation scheme design,excess performance reward design and other agreed design.Thirdly,the effectiveness of the VAM to prevent goodwill impairment risk is analyzed,and it is found that the VAM does not effectively hedge the goodwill impairment risk caused by high premium risk,information asymmetry risk and operating risk.After that,it analyzes the reasons why the VAM does not effectively prevent the risk of goodwill impairment.Finally,this thesis summarizes the case analysis and puts forward some suggestions.when designing performance commitment clauses,we can choose a variety of commitment indicators,set flexible performance indicators as far as possible,and reasonably design the performance target amount.When designing the compensation terms,the performance compensation formula should be set up reasonably,and the compensation method combining cash and shares should be given priority.During the gambling period,the performance warning mechanism should be designed to continuously supervise the operating conditions of the target enterprises.At present,most of the studies on the VAM and goodwill impairment risk are discussed separately,and most of them adopt the empirical research method.This thesis selected the case of cross-border M&A with high premium of Techsem and Coastspring,analyzed how to effectively prevent the risk of goodwill impairment through reasonable design of the terms of the VAM,and provided suggestions and references for similar M&A activities in the domestic market in the future.