The Research On The Business Appraisal For Target Enterprise In M&A

Mergers and acquisitions (M&A) is a significant way for enterprises'development and competitiveness enhancement. Along with the acceleration of the global economic integration, M&A flourishes in the worldwide. The turnover of the global M&A and restructure market reaches as high as 3 trillion US dollars annually and the number of transactions rises over 30,000 times per year. As China's economic integrates into the world economy and the continuous improvement of its capital market, Chinese enterprises are actively engaging in M&A deals and the annual growth rate of M&A trade exceed 70 percent , which has made China Asia's third-largest M&A market. It is forecasted that this trend will continue, China's M&A market will stepping into rapid development stage in the coming few years. But whatever M&A form is adopted, its core is the issue of price. If the bidding price is too high, the premium payment to the target enterprise will lead to the merger's loss in value; if the price is too low, the shareholders of the target enterprise won't convey their shares, evenly it is impossible to reach the goals for the mergers. Pricing for the target enterprise has become crucial to the success of M&A, while the correct business appraisal of the target enterprise is the most important issue for reasonable pricing. Therefore, the business appraisal of the target enterprise is the key part in the M&A deal.Under different M&A strategies, the motives of M&A tend to be dissimilar. And the angle of target enterprise business appraisal differs, which brings distinguishing value types and evaluation approaches; meanwhile, different enterprises nature will arose difference in the applicability and practice of valuation approaches. How to define value type and constitute based on different types of M&A activities and target enterprise,what are the influenced factors and how to establish comprehensive assessment approaches and models, all those are the research issues in this paper.Through constructing respective target enterprise business appraisal system upon different M&A activities and forming an overall analysis frame, the article can provide helpful reference on choosing assessment approaches aimed at different precondition in practice, is propitious to standardize enterprise valuation in M&A, promote Chinese enterprises achieve economic benefit and competitive advantage, improve core competitiveness in international competition This paper is divided into five chapters. The first chapter point out the research subject of the paper, introduces the background, the meaning and the status in quo both domestically and abroad of the issue. The second chapter begins with basic theories on M&A, presents the concept and styles of M&A. After reviewing traditional classification, the paper categorize the M&A types on the new basis - motivation .In that case, there are two types of M&A, financial M&A and strategic one. Strategic M&A that pursues the enhancement in core competitiveness is today's mainstream. In succession, the value of the target enterprise and value types are defined. The third chapter introduces and comments on traditional assessment approaches, probes into their application in M&A further. This chapter foreshadows theoretical premise for whole-length study.Followed the logical path"The motivation of M&A- the purpose of the evaluation– the value type - the evaluation approach", the paper distinguishes financial M&A and strategic M&A clearly, study the evaluation of target enterprise one by one which is the focus of the full text. Chapter four analyses on the business appraisal of the target enterprise in financial M&A deeply.This article holds that the value of target enterprises in financial M&A is treated as that of an independent synthesis from financial view. Qualitatively, influenced factors of target enterprise value consist macro environment, industry lifecycle, capital structure, etc. Refer to assessment approach, since financial M&A neglects domino effect, like normal business appraisal, traditional there approaches can be adopted, but there exists difference in applicability and usage characteristics for each methods. Representatively, when the target enterprises are classified into listed enterprises and non-listed enterprises, income approach and market approach are feasible synchronously. But on account of nature diversity, evaluation approach can be applied directly for listed enterprises while there involve a number of numerical and item adjustment for non-listed enterprises Chapter five establishes business appraisal system for strategic M&A. In this situation, the value of target enterprise is invest value or consolidated conformity income to a special merger which contains value increment. It consists of three parts: the intrinsic value of target enterprises as a separate entity,synergy value and growth opportunities value. Intrinsic value can be ensured by the discount cash flow approach. But for the evaluation of synergy value and growth opportunities value, which are more crucial for strategic M&A, traditional methods are powerless. The paper introduced Analytical Hierarchy Process (AHP) model and Real Options model to calculate the value respectively.