Applied Research On Value Assessment Methods Of Target Enterprise In Mergers And Acquisitions

M&A is not only the trend of historical development, but also an effectiveway to improve the market competitiveness of enterprises in short term.Currently, in the Asia-Pacific region, China has become the third-largest M&Amarket after Australia and Japan. But faced competitive M&A market, thefailure rate of mergers and acquisitions is higher, and the results of mergers andacquisitions are unsatisfactory. The main reason is that overestimation orunderestimation results of the target enterprises in M&A. And thus how toreasonably and accurately assess the value of target enterprises, has become thekey issues affecting the success of mergers and acquisitions. Essentially, theprocess of value assessment is the application of value assessment methods.Therefore, the significance of carrying on the application research about thevalue assessment methods of target enterprises is very important. It not onlymake up for the lack of existing valuation methods to enrich and improvebusiness valuation theory, but also can improve the accuracy of the assessment ofthe value of M&A to promote mergers and acquisitions smoothly.The value assessment of target enterprise was regarded as the researchobject of this paper. From building reasonable value assessment system，thepaper proposed valuation method which confromed to domestic M&A marketfeatures，to solve the existing problems of value assessment method. Selectingthe representing case in current M&A market to verify the applicability of theproposed valuation method, and thus got the conclusions.The research process was as follows: firstly, it got insufficient study ofbusiness valuation methods by analyzing domestic and foreign relevant valuationtheory, and thus carried out comparative analysis of basic business valuationmethods on this basis. The results of this process provided theoretical basis forthe paper. Secondly, combined with China’s actual M&A market, it summarizedthe methods of enterprise value assessment application status, and proposed theexisting problems in application of valuation methods. This process found theentry point for the article. Thirdly, in order to solve the existing problems ofvalue evaluation method, it put forward the target enterprises’ value assessment method based on value added. According to valuation sources, this methoddefined the meaning of the target enterprises. Modified model on valuationassessment in M&A was built for the method. Finally, by analyzing the casethat Jinan Iron and Steel Co., Ltd. mergered Laiwu Iron and Steel Co., Ltd. toverify the applicability of the proposed method, and proposed countermeasuresspecific applications. The main conclusions can embody following aspects.Firstly, the focus of current enterprise valuation method should be how toimprove and perfect the existing research methods based on the domestic andforeign research status of enterprise value assessment methods, in order toimprove the accuracy of valuation.Secondly, the current status of M&A valuation methods applied inenterprises were: the asset valuation method occupied the mainstream, marketcomparison approach had wide application,and discounted earnings was lessapplied. The situation caused some valuation problems, and mainly reflected infollows: the existing valuation methods were not considered value-addedacquisitions in target companies, the defining acquisition target enterprise valuewas not clear, the application of valuation methods was unitary, and intermediaryservice organizations could not play its due role.Among these problems, notreflecting value of the target company’s value-added was the biggest problem.Thirdly, according to the value-added theory of the value assessment, thetarget enterprises evaluation method was put forward based on value added,which redefined the value of the target company, and built a merger valuationmodified model. The model expressed that the intrinsic value of the targetenterprise, the synergy premium of the target enterprise, and the option premiumof target enterprise were composed of the target enterprise value.Fourthly, the case of combination between Jinan Iron and Steel Co., Ltd.and Laiwu Iron and Steel Co., Ltd. certified the applicability of the acquisitiontarget enterprise value-based method. Finally, to improve the methods applied inpractice, this paper put forward specific application of countermeasures fromunderstanding the meaning of enterprise value correctly, selecting the appropriateassessment methods, paying attention to enterprise value evaluation process, andimproving the professional level of intermediaries four aspects.