A Research On The Valuation For M&A In The Stock Market Of China After Full-circulation

Since the establishment of China Stock Market in late 20 centuries, the number, scale and complicity of merger and acquisition (M&A) activities showed a steady increasing trend. Stock market reform on full circulation has lead a big leap forwards for China Stock Market to become a mature market, moreover accompanying new laws and regulations enacted by government in 2006 also towards this end. With full circulation, the acquirer could directly acquire listed companies in secondary market, which by passed tedious government approval procedures, and reduced transaction costs for acquisition. Under such market environment, M&A would become the most optimal way for companies to reallocate resources, restructure business.In an M&A transaction, the valuation of the acquiree determines the success of the deal and even affect the long term viability of the Company after acquisition. Under new market environment, the old valuation model become irrelevant, but full adoption of western markets valuation models also inappropriate due to special features of China Market, such as the scarcity of list companies, the low volume of the market, government intervention on market, not well educated market participants, and etc,. How to capitalize on what western markets have learned from their past, and to invent our own valuation model which most suitable for current market situation becomes the most urge question to be answered, before large scales of M&A transactions take place.This paper attempts to modify western valuation model, and make it most suitable for current China Market environment. The author believes that in a valuation exercise, we should not only take into consideration the intrinsic value of the targeted company, the acquisition goodwill and also the value of shell resources (given the very limited listed companies in China capital market) in current market situation.