The Empirical Research Of Binary Tree Model In M&A Valuation Of High-tech Enterprises

With the rapid development of economic globalization,the competition among enterprises has become more and more intense,survival of the fittest of enterprises has become the superior law,so a wave of mergers and acquisitions have been set off in recent years.The topic of mergers and acquisitions of high-tech enterprises has never been interrupted,because the high growth of high-tech enterprises attracts investors’ attention and becomes the preferred target of corporate mergers and acquisitions.However,it is known that the success of a merger and acquisition case is closely related to the accuracy of the valuation of the target company,so how to determine a satisfactory price for both investors is a key factor in improving the success rate of mergers and acquisitions.In previous valuation methods,there are cost method,market method and income method,each of which has its advantages and disadvantages.The most widely used of these three methods is the income method,which is the preferred method to evaluate the value of the company,because it not only considers the overall value of the enterprise but also considers the time value of the currency.The income method is a static analysis method,the valuation of high-tech enterprises is more suitable for the dynamic analysis method,and the presupposition of the income method is that the enterprise continues to operate steadily,however,the application of this presupposition to high-tech enterprises is not feasible,because the enterprise will inevitably encounter various difficulties and challenges during the process of its operation.In this paper,the binary tree model,a kind of valuation method in real option method,is advocated,which is a dynamic analysis method.Because the future of high-tech enterprises has strong uncertainty and operational flexibility,it is difficult to evaluate such enterprises by traditional valuation methods.The binary tree model not only combines the advantages of traditional valuation methods,but also factors the uncertain value of the enterprise in the future into the overall value of the enterprise.Therefore,the real option method can provide a new perspective and thinking mode for investors and business operators to make business decisions.The paper starts with the theoretical analysis firstly,discusses the advantages and disadvantages of the traditional valuation method,compares the traditional valuation method with the real option method,and obtains that only the real option method can reasonably evaluate the uncertainty value of high-tech enterprises.After that,the paper introduces the concept of real option and two models of real option--B-S model and the binary tree model,and compares their scope of application and assumptions.Through comparison and analysis,it is found that the characteristics of the binary tree model are more consistent with the characteristics of high-tech enterprises.It is more reasonable to use the binary tree model to conduct valuation analysis than to use the B-S model.In order to combine theory with practice,this paper introduces the case of M Company merging and acquiring N Company.Firstly,it introduces the basic situation of two companies and the whole process of mergers and acquisitions.Then it predicts the free cash flow of the enterprise in the future and applies the discounted cash flow model to calculate the value of existing assets of the company.Because the value of high-tech enterprises is mainly reflected in intangible assets such as patents and goodwill,it causes the strong uncertainty in the future of such enterprises.Therefore,their value can be divided into two parts,one is the existing asset value calculated by the discounted cash flow model,and the other is the real option value calculated by the binary tree model.Finally,the results calculated by different valuation methods are conducted the gap analysis and sensitivity analysis,so as to verify the rationality and accuracy of the valuation results of the binary tree model.Through the analysis of this paper,it can be concluded that the real option method is more suitable for evaluating of high-tech enterprises,and the result is much closer to the real enterprise value.Finally,it is hoped that this article will provide reference for investors and managers in decision-making.