Decision Research In Optimal Timing Of Mergers And Acquisitions Based On Real Option Theory

With the rapid development of the global economy,the enterprise M&A activities occur frequently and has become more and more large.Successful M&A can optimize the allocation of resources,and promote the development of enterprise more healthy.However,the failure of M&A cases can be found everywhere,the main reason is that the decision-making process of M&A have great uncertainty,irreversibility and the timing of acquisitions is flexibility,which making acquisition have the characteristics of real option,The decision-making time of M&A is the key to ensure the success of M&A.Therefore,how to use real option theory to study the optimal timing of M&A is one of the most important issues in the field of theory and practice at home and abroad.In this paper,we firstly overview the development of real option theory,especially the research achievements in the field of M&A,and then describle the related theory of M&A,Furthermore we collect the share data in M&A market from an empirical point view of to use geometric Brownian motion,arithmetic Brownian motion to simulate the process of the uncertainty of share price fluctuations.Based on this,this paper uses the real options method to set up the decision model of optimum timing of M&A,when the influence of emergency was considered,Taking into account of the impact of major events in the process of M&A sometimes,it will lead to irregular volatility of the share price,so that the geometric Brown motion with “jump” process is introduced to simulate the fluctuation caused by the emergency event,so as to construct a decision model of the optimal timing of M&A,which is affected by the emergency.Finally we discussed the sensitivity of various parameters in the timing of M&A,which are under the influence of the emergency event by using the Matlab software.The analysis shows :Firstly,The optimal timing of M&A has a positive correlation with these parameters,such as the share price fluctuation rate,investment cost,the risk-free interest rate,the average incidence of emergency,the best share price of merger would rise along with those parameters increasing,thereby the waiting time for M&A could be prolonged.Secondly,The optimal timing of acquisition is negatively related to the expected drift rate,the number of shares,with these parameters increased,it would non linearly decreased,and decreased more slowly,buyers will choose to accelerate M&A.Thirdly,Emergency influencing parameter on the timing of the merger is non-linear downward trend began,when emergency event occurs,immediately continued to increase with nonlinear form,indicating that the impact of emergency events on the acquisition timing is highly significant.