Application Of Real Option Valuation Method In Mergers And Acquisitions Of Companies

As a strategic investment vehicle, mergers and acquisitions is an effective way tocontrol increment, optimizing stock. Assessment of the target enterprise value of M&A activity is the core of the work, the only reasonable valuations, in order to ensurethe smooth completion of the merger and acquisition behavior.This strategic acquisition of investment behavior, with irreversibility anduncertainty, in line with real options features. This article will focus on three basicdefect assessment methods can not quantify the uncertainty caused by the risk-benefitassessment of enterprise value in the proposed acquisition of real options theory toassess the value of the enterprise.Firstly, the background significance, status, and domestic development topics,elaborate research ideas and research. Secondly, the introduction acquisition theory,real options theory, mergers and acquisitions in the real options theory, comparativeadvantages and disadvantages of the three basic evaluation methods and real optionsmethod analyzes the M&A process characteristics and types of real options. Again,describes two basic methods of real options pricing model: BS pricing model and thebinary model. Analysis of the trigeminal tree model based on the binomial modelideas and compare the advantages and disadvantages of the three models. Chapter IVmerger pricing model established in this article, first apply a two-stage model toestimate the discounted value of the target company ’s own free cash flow; then thevalue of their own the underlying asset value is calculated as the value of real options,the application of B-S model enterprise their option value and the acquisition value ofthe option itself; application trinomial tree option pricing model to calculate the valueof the acquisition. Finally, in the spring of Wangfujing Department Store, the actualmerger cases, the application of the model to calculate the value of the targetcompany, and with the known results were analyzed and compared to verify thefeasibility of the model.