Target Corporation Real-Option Valuation In M&A Transaction

With the continuous establishment of the market mechanics and the fierce competition among industries, numerous trading practices between companies for the external growth path has slowly become normal and significant part of economy growth.For all the elements in the M&A business, price consideration is most concerned by both parts of the transaction. A reasonable M&A price is the foundation of the growth of the new institution, which, is based on the thorough valuation of the target companyDuring the 100 years of the valuation theory development, several models and methods have been introduced into the valuation school and become common notice in the transaction, that, many have something can not be explained by the method itself. Nearly all traditional valuation methods, as DCF, the Asset model and the comparison model, have taken the consideration of one-time decision for the M&A transaction, that is, the business opportunity has no time series concepts, no consideration for the business opportunity in the future, which, truly, may not be precise way of target company valuation.This article is mainly based on the discussion from the real-option method in the target company valuation during the M&A business. We shall firstly make a summary on the existing theory and discussions and then focus most of our efforts in putting the real-option in the M&A decision making process.