A Case Study on the Acquisition Price Determination
Date Issued
2014
Date
2014
Author(s)
Wu, Hui-Chuan
Abstract
M&A is one of the strategies for a company to expand its economic scale in the shortest time to enjoy economies of scale, tax incentives, improving processes, shared resources, reducing financial costs and other advantages to effectively improve operational efficiency, reduce costs or push up stock price. M&A is the trend of the era. Cases were formed one after the other. It tells us that M&A officially becomes the main growth engine. From acquirer standpoint, the commonly used valuation methods are discounted cash flow (DCF) method and market multiples method. Discounted cash flow method requires the estimated cash flow statement and the discount rate of the target company . Market multiples method is to determine a market reasonable multiplier. Then the evaluator’s takes his/her subjective judgment to modify this multiplier based on industry market multiples. After evaluated by various valuation methods, the value of the target company will be decided based on bargaining power of the parties and all kinds of market factors. In this study, we use game theory analytical methods to explore price negotiation and decision making processes under information asymmetry situation. The Nash price will be greatly influenced by discount factor and the sufferance after rounds of price offering. M&A valuation & its success are highly related to corporate governance, investment strategy, sales & marketing, manufacturing, finance/accounting and associated risk of the target company. It is necessary to manage and control risk while reducing the possible risk and loss to ensure the success of M&A, to achieve the synergy and ultimately to create shareholder value.
Subjects
mergers and acquisitions evaluation；bid structure；game theory； value chain, bargaining theory
Type
thesis