Research On Application Of Option Pricing Method In M&A

M&A has developed rapidly in recent years in China, which bringsenterprises with developing opportunities and challenges. In a certainextent, whether M&A will success or fail depends on the benefitproduced by the target enterprise after M&A. One of the reasons whicheffect the benefit is the valuation. So that exploring alternatives on thevaluation of target enterprises in M&A is emphasized by firms.This paper first states some concepts such as M&A and option. Afterreviewing predecessors'research achievements, the paper proposestheoretical basis——B-S option pricing model. Secondly, this paperdeeply analyzes the value composition of target enterprises in M&A,which is divided into two parts, the value of asset and the right to choose,using options to explain them. Then according to the future of optionsinvolved in the value of target enterprises, this paper define each variableof B-S option pricing model to found M&A valuation B-S option pricingmodel. At last, this paper find76M&A cases of China, acquire relateddata and take Empirical Analysis of M&A valuation B-S option pricingmodel. The final outcome demonstrates the feasibility and practicality of B-S model, which can give suggestions to domestic enterprises in M&Awave.In conclusion, this paper has proved the thought that explaining thetarget enterprise's value with some kinds of options, that is, the targetenterprise's value contains one call option and one put option. It's shownthat valuation results of76cases are good, meaning that M&A valuationB-S model is feasible and practical and can be utilized in enterprise M&Avaluation in future.