| M&A is the eternal theme of the commercial market and capital market.Now China is in an important stage of economy transition and structural transformation,which promotes China's listed companies to carry out M&A activities actively.After going through the biggest wave of mergers and acquisitions 2014-2016 in China's capital market,disadvantage consequences of M&A are appearing,such as failing to accomplish target performance,failed integration,and goodwill impairment and so on,which cause decline in performance of companies.In the market of M&A,making correct evaluation of objective corporations is crucial,which can form a higher safety margins for M&As.Especially when the effect of merger and acquisition is not good,a higher safety margins can help M&A companies effectively control the adverse effect.ln China,the statistics shows that the value of companies in the case of mergers and acquisitions of listed companies often uses cost approach,income approach and market approach,or a mixture of them.Therefore,we believe that it is of great significance to put forward more a new method for corporate to evaluate objective corporation.We use the modern Graham&Daud investment method(also called the value investment)as its basic framework to sets up a set of value analysis framework to evaluate value of objective corporations by integrating accounting and management knowledge,which,furtherly,determines whether the M&A investments have sufficient margins of safety.The analysis framework of this paper is mainly composed of four parts:net asset value assessment,profitability value assessment,franchise value assessment and growth value assessment.The assessment of net asset value is to revalue the enterprise by using replacement cost approach.The profitability value evaluation is to revalue the enterprise by using the income method.The valuation of franchise value and growth value only apply to companies that have a continuous competitive advantage.We think that whether a company has franchise rights and moats or not is actually an analysis of the elements of the market,competitive advantages,and profitability of an enterprise's products or services,which constitute the business model of the company.Therefore,in the evaluation of franchise value,we compare and analyze objective corporations with competitors from the perspective of positioning,business systems,key resource capabilities,and profitability models,which determines whether the company has sustained competitive advantage in the industry.Finally,we take Zhejiang Rongxin Network Technology Co Ltd's acquisition of Hundsun Technologies Inc as a case to illustrate specific application process of the value investment analysis framework,including the value adjustment of intangible assets,value adjustment of fixed assets and depreciation adjustment,etc.Ultimately,we conclude that Hundsun Technologies Inc is worth about RMB 20.5 billion and the corresponding value of the 20 percent equity is about RMB 41 billion.So,this investment has a margin of safety.At the same time,in order to verify the rationality of the M&A pricing method in this paper,we also calculated the intrinsic value of Hang Seng Electronics by using the free cash flow discounting method(approximately RMB 7.5 billion).The evaluation of enterprises is a combination of science and art.All evaluation frameworks of merger and acquisition have limitations.Considering the huge uncertainty of mergers and acquisitions,the evaluation framework of M&A pricing for listed companies does not take into account the impact of mergers and acquisitions on the process of evaluating.It will,to some extent,underestimate the value of the company.However,this also precisely reflects the key idea of value investment("safe margin").In a word,the mergers and acquisitions pricing method which is based on the value investment in this paper can be applied to the evaluation of mergers and acquisitions of listed companies in China,which provides another method choice for investors. |
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