The Real Option Method To Evaluate Synergistic Effect Of M&A

In recently years, with the development of economic in China, more and moreenterprises make the strategy of "going outside". The merger and acquisition ofcorporation happened more and more. As we all known, the M&A is the most effectiveway for corporation to expand businesses, however the rate of successful M&A is notvery high. Finally, the reason is that the corporation did not made good research beforeM&A and there is no effective integration after M&A. So, the effective valuation ofM&A synergistic effect is helpful to make a decision.General evaluation of M&A synergy effect is the discounted cash flow discountmethod, but this method doesn’t take into account the "chemical reaction" whichproduced by both sides after M&A. At the same time it also just stands under thecondition of the existing resources or assets to identify growth status. So we considerintroducing ideas of real option to evaluate. The method of real options can effectivelyconsider the condition of uncertainty. It reflects that the mergers and acquisitions havethe option, which can be the effectively supplement to the traditional methods and makethe result more scientific and reasonable. Based on the conception of real option and themerger, and gradually lead to the use of real options method of evaluating synergymodel, find out the premise of real option. Finally we illustrate the idea of the specificimplementation process and the application steps through a case, and point out thatachieving synergies not only needs number standard for evaluation, but also strategicsupport and abilities organized.We can deeply understand the real option method through this article. Now theapplication of real option to evaluate M&A synergistic effect is far too less, so this areaneed to be more researched. In the future, the tomorrow of this method will be better.