M & A Target Company Valuation Methods Based On Option Theory

Enterprise M&A is the derivation of market economy and modern enterprise system, which has more and more important position in our county's economic life. Accurate evaluation of the target enterprise is a key of success during M &As. Among which, one of the most important factor is to choose scientific and practical evaluation methods. Presently, under the background of information economy, uncertainty is one of the most obvious feature of modern enterprise's environment. So, whether the investment opportunity can be caught under such an uncertain condition will have great impact on the value of the enterprise.According to the analyses of orthodox valuation methods, though the DCF is a more mature method, it still cannot evaluate the target enterprise's uncertainty value under uncertainty environment. Since M&A has the feature of option, it is nature that OPM can be adopted to valuate the target enterprise during M&A under some hypotheses. The most significant feature of OPM in M&A is its effective valuation on the uncertainty opportunity value.This article, with reference to fundamental theory and experience of corporate valuation, and aiming at existing problems that those traditional firm valuation methods (DCF) faced with, by dividing the value of the target enterprise to asset value and opportunity value, a more correct valuation result will be got, and a valuation model of an Objective Enterprise in M&As based on real options is developed when it's under the operation flexibility.This thesis consists of the following seven chapters:The first chapter explains the study background, motivations and current state of the relative study at home and abroad, and describes the structure of this thesis.The second chapter analyzes the influence factors of objective enterprises' value and existing problems of valuation methods at present and discusses the importance of objective enterprises' valuation in M &As.The third chapter discusses the traditional valuation methods and existing problems, stress analyzing the DCF.In the forth chapter, aiming at the real option characteristics in M & As, the concept of real option is introduced and the structure of objective enterprises' value in M &As is analyzed.The fifth chapter studies the application of the option theory in M & As,introduces the basic methods of real option and argues the applied frame of real option model in M &As.The sixth chapter illustrates the valuation of an objective enterprise and introduces the application of valuation method based on the real option in M & As.The seventh chapter includes a conclusion of this thesis and points out the further research directions.