The M&A Decision-Making Analysis Based On Option Game Theory And Real Option Model

M&A is an important way to enhance the competitiveness of enterprises and seek a long-term strategy for their own development.Throughout the several global M&A booms since the nineteenth century,mergers and acquisitions did play a significant profound in the promotion of enterprise resource allocation.After 2008 financial crisis,the cross-border M&A heat dissipate slightly,but China has set off a wave of inter-industry mergers and acquisitions.While,M&A is a complicated decision.It has a feature of great uncertainty.Purchase price and the timing of the selection are the two core issues of the entire acquisition process.Traditional enterprise valuation models do not consider the M&A projects' delay ability.Therefore,using the traditional enterprise value assessment in M&A decision-making model for the analysis of pricing in merger and acquisition activity,cannot effectively solve real economic activity in mergers and acquisitions investment irreversibility.When market competition exist,the traditional evaluation model also does not apply to external uncertainty and incompleteness of information.M&A environment uncertainty and game features make the option game theory is necessary in the process of mergers and acquisitions.Option Game Theory makes the results more close to the real situation,and more practical significance.Previous scholars has concentrated a lot of effort on the option game theory in the corporate R&D investment in the project application,or the merger and acquisition under the complete information condition,and this is clearly inconsistent with the reality.Based on the previous studies and combined with the foreign research results,this paper presented in incomplete information game,analysis of the situation,determine the pricing,and the opportunity to merge and acquisitions,in order to propose a new method for the mergers and acquisitions investment decisions.The introduction of the option game method,not a negation of the traditional method,but a complement to the theory to make the results closer to the true value.This paper reviews the development of option game theory,summarized the research scholars' results,analyze the basic idea of the theory of real options and the option game theory,research methods and general analytical framework of Option Game Theory.Then briefly summarize the traditional target company's pricing methods,and indicated that their defects.Then based on the real option game method's characteristics and ideas,get an appropriate pricing model and analyze the appropriate opportunity to make mergers and acquisitions investment.After the theoretical basis of the option game,we analyze the business process in the merger game,determined in complete information and incomplete information merger price,and then analyzes the timing of merger decisions.Finally,we through a simulated case to illustrate the decision making during the process of M&A.