Improved EVA Model For Valuation Of Corporate M&A And Applications

Accompanying the international economic globalization trend, M&A (mergers and acquisitions) is becoming one of the key access for enterprises to allocate their resources, build their core competitive advantages, and realize their multi-product chain strategy. In this essay, the author conducts a comparative study of traditional theories and models on M&A valuation and introduces the EVA model. The author analyzes the virtues and defects of different means, and point out that all the traditional methods are not be able to access the M&A value since they are based on the accounting profit rather than economic profit concept. So the traditional valuation methods have the limitation to access the M&A economic profit and value, and can not lead to a right financial decision if ignoring the necessary economic value like "synergy " concept. Based on the above theory, the author studied the EVA concept and valuation model, and proposed the improved EVA model for valuation of corporation. Finally, the author introduces the M&A case of SINOCHEM with Shandong Haihua Holding Company in details, with the aim to provide enterprises with a new valuation method.This essay is composed of four chapters as follows.In Chapter One, the author introduces the background and importance of the studies on M&A of enterprises. Besides, several main M&A valuation methods have been introduced.In the second chapter, three kinds of major methods are analyzed on basic principles, suitable conditions and individual limitation on applications. The most important defects for the traditional methods are ignoring the equity capital costs, and can not reflect the real value of M&A.In the third chapter, the author introduced the EVA concept and principles, analyzed the possibility of applying the EVA model for valuation of an enterprise, and suggests an improved EVA model by adding the synergy among related companies into the whole economic profit when assessing the value of an enterprise on the M&A business.In the forth chapter, the author tried to apply the improved EVA model to the case of M&A between SINOCHEM and Shandong Haihua Holding Company, seeks to realize the advantages of improved EVA model for the valuation of corporate compared with the traditional valuation methods. Also, the author studies the limitations of improved EVA model.