Clifford Chance

Chinese Courts Rule on Value Adjustment Mechanism – Impact on PE Investments

30 January 2013

Private equity (PE) investors commonly adopt a price or valuation adjustment mechanism (commonly referred to as VAM) when making growth capital or venture capital investments to mitigate against the uncertainty of the future financial performance of the investee company following the investment. The investment documents would usually provide that if the actual financial performance of the investee company post-investment turns out to be worse than an estimated or target financial threshold agreed by the investee company when the PE investor made its investment, the PE investor should be compensated by either cash or additional shares in the investee company.

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