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Financial Analytics: Science and Experience
 

Developing the business valuation technique for Mergers & Acquisitions

Vol. 14, Iss. 3, SEPTEMBER 2021

Received: 10 June 2021

Received in revised form: 26 June 2021

Accepted: 15 July 2021

Available online: 16 August 2021

Subject Heading: ASSESSMENT AND APPRAISAL ACTIVITIES

JEL Classification: C13, G12

Pages: 263–280

https://doi.org/10.24891/fa.14.3.263

Nikolai S. SEMENOV Moscow Health Information and Analysis Centre, Moscow, Russian Federation
Semyonov-nikolai2008@yandex.ru

ORCID id: not available

Vitalii V. KLEVTSOV Financial University under Government of Russian Federation, Moscow, Russian Federation
vklevcov@inbox.ru

https://orcid.org/0000-0002-8203-5615

Subject. According to empirical data of consulting firms, the synergistic effect does not arise every time, since about 70 percent of M&A deals happen to be unsuccessful, destroying the enterprise value.
Objectives. We analyze whether it is possible to make M&A more effective, and develop the business valuation technique for M&A on the basis of the real options method.
Methods. The study involves methods of analysis and synthesis, generalization, induction and deduction, methods of systems analysis, statistical methods, chart and graphical techniques for statistical data representation.
Results. We analyzed and determined the most applicable method for options premium valuation – the Monte-Carlo method, since it appraises non-listed companies and facilitates computations. As part of equity valuation, we suggest substituting the rating to the assessment of risk components by analyzing corporate performance indicators. Having analyzed potential deals, we proves the zero correlation between the options premium and the maximum premium, thus making a game formula of the synergistic effect.
Conclusions and Relevance. The correlation between shareholders’ premium and options premium is identical to the correlation of the maximum premium and options premium. That is, the correlation does not virtually exist. As a result, we made the synergistic effect formula. The conclusions and recommendations herein can be used by business leaders to financially justify non-organic business growth mechanisms, develop the business strategy subsequently. Appraisers may also rely upon the findings to improve the quality of business value prediction models as part of M&A deals.

Keywords: business valuation, M&A, real option, shareholders’ premium, synergistic effect

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