The Application Of Real Options In Kainuo Technology Acquisition

Now in the background of economic globalization, the enterprise’s expansion and capital operation become much more stronger, in which enterprise’s acquisition and merging is an important strategy. At the end of April 2014, according to the data from the ministry of commerce, the global enterprises accumulated merger scale to exceed 1 trillion dollars,54 days earlier to reach the scale than 2013, which hits the fastest pace in seven years. And the key point to determine success or failure of merger and acquisition is the pricing of target enterprises. However, value evaluation methods of enterprises used nowadays underestimate the value of target enterprise more or less, which leads to decision-making errors of investment. And the reason why it happens is mainly because values of real options involved in merger and acquisition of target enterprise have been ignored. Through the value evaluations of merging target enterprise, the paper introduces real options pricing theory and combines its real option thinking to obtain more correct value evaluation results, which is close to the true value. Additionally it improves value evaluation theory system of enterprise’s merger and acquisition, which promotes a smooth development of enterprise’s merger and acquisition.This paper uses the theory of standard research and combining actual case analysis research method. At first, it introduces the background and significance of this study, summarizes the researches at home and abroad, the current situation of the real option theory; Secondly, after analysis of the traditional methods of the enterprise value valuation theory, and analyzing defects of the traditional enterprise evaluation methods, in this way can introduce theoretical knowledge of real option pricing method, highlight its necessity of introduction and moreover perfect value evaluation system of enterprises in our country; that without considering the real option value of target enterprises contains which shows the necessity of introducing real option valuation in M & A, and improve enterprise value evaluation system to introduce the real option theory; Thirdly, it introduces briefly relative backgrounds of merger and acquisition case of Kainuo technology company and emphasizes the necessity of introducing real options, and at the same time, expounds the value assessment of target enterprise ideas and methods, combined with the real option valuation method of practical applications in the case of Hailan Group’s acquiring Kainuo technology company at a 23.29% stake and making a conclusive analysis of predicted results; Finally, it illustrates objectively the difficulties in broadly introducing real options method in the field of value evaluation methods at the present, and puts forward relevant suggestions for practical application of real options based on the difficulties appearing in application of real options method.The paper points out that in mergers and acquisitions, the value of target enterprise is mainly composed of two parts, which include the value of the target company itself and real option values owned by acquirers. For the former we can use the traditional pricing and evaluating methods such as market method, asset base to evaluate method, discounted cash flow method and so on, and for the latter, we need to introduce real option thinking to make evaluations, then the results coming by summing are more accurate enterprise’s value. In addition, it also emphasizes the purpose of application researches on real options in enterprise’s value evaluation is not to refuse other evaluation methods and replace other traditional evaluation methods, but supplement the other enterprise evaluation methods.Upon making value evaluations, the real options methods should be used with other evaluation methods, which can make up their disadvantages and get a more accurate evaluation result.