Research On The Evaluation Model Of The Target Enterprise’s Equity Value In M&A

M&A has been widely used in recent years, one of the important reasons which effect the success for M&A is the valuation. On the basis of theoretical research about the evaluation method for equity, This paper has selected some Corporation merger cases listed in2011and2012as the study samples to be taken empirical analysis of the B-S option pricing model and discounted free cash flow model.This paper thinks that the target enterprise equity has the character of option, so option has been used to explain the value of target enterprises equity in M&A. Redefined variables have been used to build B-S model for valuing equity in M&A. After that, financial and business condition of target enterprises have been deeply analyzed and the model variables for each one has been carefully dealed with. Then, the validity of the model has been analyzed after the reduced actual purchasing price being used as the control value S. As the evaluation results of the model show, the ratios of model evaluation value and control value S are in the range of70%-130%for80%of the samples and there are32.5%cases whose ratios are in the range of 90%-110%means that evaluated results nearly equal to the purchase prices, Besides, the paper finds that the evaluation value and the control value S has significant positive correlation.In addition, the corrected actual equity value, the corrected acquisition price in M&A and B-S model evaluation value have been compared. It has been found that the B-S model evaluation value has correction effect on the actual equity value to determine the acquisition price in M&A.Secondly, the traditional discounted cash flow model has been used to estimate the equity value of target enterprises in M&A. Considered many factors, including business history, income level, industry conditions, the macroeconomic environment and other factors, qualitative analysis method and quantitative analysis method have been taken to predict the future operating income and other variables of the free cash flow model. According to the valuation results of discounted cash flow model, the evaluation values of model are generally lower than the corrected acquisition price. Then, the paper made an study on the relation between the evaluation values and the corrected acquisition price. And the results show the evaluation values is dominantly relative to the corrected acquisition price, and can account for it.This paper analyses the evaluation values of B-S model, the evaluation values of discounted free cash flow model. The results of comparative analysis show that, the valuation deviation rate of discounted free cash flow model is bigger than the valuation deviation rate of B-S model. In general, compared with the evaluation value of discounted cash flow model, the evaluation value of B-S model is more accurate and more effective.