How To Value A Successful Strategic M&A

M&A is a perpetual topic. The headlines of newspapers are glutted with mergers, takeovers, acquisitions and reconstructions everyday, which become the focus of the public and polices of corporations. In M&A, both sides in trade could create much value. To attain the aim of making profits of both sides through a trade with fair price is just the fascination of M&A. It also the secret of why the actions of M&A have been active for many years. How to value a suitable price for the target firm is the key of a successful strategic M&A. Since the reform and opening to the world of our country, some enterprises in China begin their mergers. In China, M&A has played a more and more important role as an effective mode to restructure the state-owned assets. Mergers would become the main forms to restructure layout and frame of national economy. Before long a boom of mergers and restructurings would come to china. We believe that the rich theories and practices in foreign countries could be used in establishing competitive modern enterprises, solving the difficulty on altering mechanism of state-owned enterprises and setting up the socialist market economy system with Chinese characteristics ultimately.This paper assigned four chapters to study the value of a successful strategic M&A. In the first chapter "The component of the value in M&A", we summarize the research results on the successful M&A and the creation of the value in M&A, probes into the concept of strategic M&A and the cautions in valuing M&A. Then we decompose the components of the value in a M&A through an example and drawthe conclusion that a successful strategic M&A is the M&A in which synergy value exceed the premiums paid. The second chapter "Intrinsic value of a independent corporation" beginning at the analysis of business and finance, carries out business strategy analysis, accounting analysis and financial analysis. In this chapter, we indicate that forecasting on the prospective of a corporation in the base of analysis is the prerequisite of valuing its intrinsic value. After that, we introduce several popular value methods in foreign countries. In the third chapter "Synergy value", we analyze the source of synergy value at first. Then we explain how to calculate synergy value by means of comparing the value of a corporation before and after mergers. Since the conventional NPV cannot provide a suitable value for some M&A with option, we supplement the option value method. Besides that, the changing of parameters in value models would have a heavy impact on the result of evaluation, so a sensitivity analysis is essential. To ensure the reliability of the result, we usually need to examine it. In the last chapter "The current situations of M&A in China", we analyze the problems existed in our M&A market currently, mainly the problems related to notions and valuations of M&A. Finally, we put forward some enlightenments to the mergers and restructurings of Chinese enterprises according to our study. In this paper, we introduce the fundamental principal of valuing a M&A in detail, set forth the components of values in the enterprise being merged and some methods to value it systematically and thoroughly, put forward the definition of successful strategic M&A explicitly and supplement and perfect the convention valuing method with option value method.