The Difference Of The M & A Pricing Multiples And The Index Of Economic Freedom Chinese Interpretation Of The Paradox

M&A, or Mergers and Acquisitions, refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity.M&A is a double-edged sword. A successful merger can bring huge profits for the company, while a failure one can even bring a company into bankruptcy situation. The most important reason for the failure of many M&A Cases is the inaccurate valuation. Thus, in M&A decision-making, based on scientific and rational target company valuation, finding a suitable trading price become very important.In practical operation, in order to better compare these historical transactions, we typically use comparable transactions analysis to compare the selected multiples, such as EV/EBIT, EV/EBITDA.Factors affecting valuation multiples can be divided into two categories: micro factors and macroeconomic factors. Micro factors are mainly refers to the development of enterprise itself, including the current asset position, and future development potential, and M&A transaction details. Macroeconomic factors include the volatility of the market and the specific investment environment.In this paper, we will use Thomson One historical transaction data and the Index of Economic Freedom released by Wall Street Journal and the Heritage Foundation. The study founds that the specific transaction size of the acquired company's sales amount, RONA and also trade freedom will significantly affect valuation multiples.In reaching these findings, this article is further amended on the model and tries to explain paradox of economic freedom in China from the perspective of cross-border M&A.