Research On Pricing Negotiation Of M&A Exit Approach For Private Equity Funds

Pricing negotiation is a key part of private equity funds' M&A exit approach,it directly determines whether the deal can be reached or not.This paper made a research on pricing negotiation link,and explored how to improve the success rate of private equity funds in pricing negotiation link in order to provide decision-making reference for the M&A exit practice.This paper used evolutionary game theory to study evolution paths and influence factors of both sides of the pricing negotiation who were bounded rationality under the condition of asymmetric information.Firstly,it established evolutionary game model of pricing negotiation,and drew a conclusion of private equity funds and the acquirers' replicated dynamic equation respectively.It discussed both sides' evolutionary stable strategy under different conditions,and revealed the influence factors which can affect each side' evolutionary stable strategy.Then,it created the replication dynamic phase diagram of both sides,and specified the interconversion paths of each region.It also used Matlab software to verify the simulation results.The results showed that private equity funds and acquirers update awarenesses and judgments of each other in pricing negotiations constantly,and evaluate the opponent's acceptance probability to take corresponding strategy.As for the outcome of the negotiations,it depends on the respective assessment of each other to accept the current quotes,learning level and reaction speed.Specifically,the acceptance probability of private equity funds would be greater when quotes becomes higher and the true value of the target enterprise becomes lower while the acquirers' acceptance probability would be greater when quotes become lower and the present value & potential value of the target enterprise becomes higher.However,no matter the compromise comes from private equity funds or acquirers,it's not good for improving the success rate of negotiations when one-time compromise becomes larger.Based on above results,this paper suggested that private equity funds should assess the value of target enterprise in pricing negotiation reasonably,release positive information and show huge potential of target enterprise to the acquirers.In order to avoid negotiation breakdown caused by misjudgment effectively,the private equity funds should also evaluate the acceptance probability of the acquirers by making full use of all ways,especially negotiation accurately.Testing opponent's bottom line through a small amount of compromise could also maximize the benefits.Establish a professional negotiating team can help private equity funds capture the reaction of the acquirers and adjust their own strategy accurately,so that private equity funds would most likely occupy the active position in pricing negotiation.