Value Assessment Of Synergistic Effect Of Mergers And Acquisitions Of Automobile Enterprises

Although China’s automobile industry started late,it has developed rapidly and become an important part of China’s manufacturing industry after joining the WTO.Merger and acquisition is an important way for enterprises to expand and develop.The most basic motivation of M&A is the synergistic effect,including management synergy and operational Synergy.For automobile enterprises,technology synergy is also an important consideration.The acquisition of Geely and Volvo is the largest and most successful typical case of private automobile enterprises.This paper attempts to take it as the object to evaluate the value of its synergistic effect and analyze the causes of the synergistic effect.Firstly,this paper introduces the general situation of the acquisition case of Geely and Volvo,which is a typical strategic acquisition.In 2008,Geely began to put forward the acquisition intention to Volvo,which was in financial difficulties,and the acquisition continued until March 2010.Geely ended up with a 100% stake in Volvo and exclusive patents,but no intellectual property rights for Volvo’s involvement in research and development by other companies.Secondly,cash flow discount model and real option model are used to evaluate the synergetic effect of Geely’s acquisition of Volvo.(1)the counterfactual simulation method,assuming that Volvo is not acquired,use discounted cash flow model to estimate the market value of the Volvo in 2010 E(V_volvo)for $7.605 billion;(2)take a real option model to estimate the Volvo has created the synergy effect value of E(S_volvo)for $881 million;(3)the counterfactual simulation method,assuming that Volvo was not acquired,adopts the discount cash flow model to estimate the total value of synergies E(S_total)for $1.027 billion,backward for Geely created the synergy effect value of E(S_geely)for $146 million.Finally,the paper analyzes the causes of the synergy effect from the aspects of technology synergy,management synergy,management synergy and financial synergy.The analysis found that(1)technology synergy played an obvious role.Before 2009,Geely’s invention patents were in the single digits,but after 2014,the average annual number was nearly 90.1 to 2 new cars were launched per year before the acquisition,but 7 new cars were launched in the highest year after the acquisition.(2)operating synergies played a role.After the acquisition,the net interest rate on sales and return on assets continued to decline in 2010-2014 but rose rapidly after 2014.(3)the effect of management synergies is limited,and the management expenses also began to decline in 2014,but the decline was not significant compared with that before the merger;4)the effect of financial synergies is also limited,especially the solvency has not been greatly improved.To sum up,synergies of Geely’s M&A are generally derived from technological synergies.Combined with case analysis,this paper gives some enlightenment and Suggestions for the M&A of automobile industry.The main contribution of this paper is to take Geely’s acquisition of Volvo as the research case,use counterfactual simulation and combine cash flow discount model and real option model to evaluate the value of synergies,analyze and find that technical synergy is the main role.