Assessment, Based On The Value Of Mergers And Acquisitions Of Real Options Thinking

Since the 1990s, with the adjustments of global industrial structure and the quick integration of the world's economics, the world's fifth wave of mergers and acquisitions is sweeping across the world. Since China's accession to the WTO in 2000, China's foreign mergers and acquisitions have begun to get its second peak. However, investigations has revealed that the current overseas mergers and acquisitions are not always profitable, 1 / 3 of which were profitable, 1 / 3 just made a balance, and the rest have fallen into deficits or business closure . About 50% to 70% of the merger cases ended in failure. This paper takes the failure of price assessment as one of the most important reason for the failure of M & A.Currently, most China's overseas mergers and acquisitions are only based on a comprehensive high-level assumption to assess the strategic value and potential synergies in the M&A, which just gives a certain percentage of the extra payment on the basis of traditional valuation theories. In fact, the correct approach is that the company's decision-makers should prepare a detailed plan, list the necessary actions to carry out the synergies before the deal. They should use the historical data to estimate the relevant variable, and price the target firm under the proper model, providing a reasonable assessment level for firm's pricing.In this paper, the first thing is to analyze the characteristics of M & A and real options. On the basis of this analysis, this paper demonstrates the feasibility of the application of real options. M&A has some characteristics of the real option: Firstly, the flexibility of M&A decision. Secondly, the price of the assets of the target enterprises is fluctuant. Moreover, risk and income are of dissymmetry, which is coincident with characteristic of the option. Finally, the flexible options exist in the course of merger and acquisition, and these real options do have value.Based on the above analysis, this paper sums up the delay options, growth options, the scale of change options, conversion options and their characteristics in the M&A .Then this paper details the three kinds of pricing model , analyzing the assumptions respectively, and gives the relevant practical examples . In analysis of practice , this paper analyzes the example of CNC mergering PCCW , using B-S model and dynamic pricing model to price the growth options and deferred options .At the same time, this paper establish two value functions containing real options, one with the expiration date ,the other with unexpired . This paper gets the threshold limit value by applying the real options pricing model, with equivalent conditions, smooth conditions and the value conditions which meet the two functions .The results will be testified by the data after merger to approve the enterprise merger value can be assessed based on the real optionsThis paper believes that the policy-makers should make a detailed business plan before the merger, and modify the relevant variables in order to make a reasonable estimate of the appropriate value of the real options, specifically including the following steps: 1, the future analysis after the merger decision; 2, the identification and assessment of uncertainties; 3, in-depth market survey to determine controllable factors and uncontrollable factors; 4, the model building of decision-making structure, the calculation of the critical value of mergers and acquisitions. This will make the initial assessment more rational and also be conducive to the latter integration of the M & A, which will help the enterprises to get access to the ultimate success.The adoption of the real option will undoubtedly embody the development opportunity of a company, thus making the result of valuation more reasonable, which is helpful to catch the M&A opportunity and improve the success possibility.