The Logic of Merger and Acquisition Pricing

Lenz, Rainer (2008): The Logic of Merger and Acquisition Pricing. Forthcoming in:

Abstract

The valuation of synergy is vital to the success of any merger, however, given current valuation methodologies and the complexity of the task; it is also the most challenging element of merger and acquisition pricing. Conventional valuation methods assume that sales figures and market share of the acquiring company are easily transferable within the new entity. Current synergy practices also assume amalgamating various corporate functions will produce significant cost reductions. The key component missing from current methodologies is the failure to analyze every corporation as a complex system containing various elements and relations. If such a delicate system is segmented due to a merger, the outcome measured in turnover and profit figures can not be accurately forecasted by simply aggregating key financial figures. The goal of this article is to go beyond the simplicity of current methods in order to develop a methodology better suited for evaluating synergy effects. This new approach integrates elements from both the framework of knowledge management and the sociological theory of systems and elements. The alternative methods proposed in this article will simultaneously deliver creative and innovative solutions to enhance the success of mergers and acquisitions. These new proposals also help to clarify the short comings plaguing traditional methods which inevitably lead to the destruction of shareholder wealth.

• Item Type: MPRA Paper
• Language: English
• Keywords: Merger, Acquisition, Pricing Methods, Corporate Evaluation, System theory, Asset pricing, Investment evaluation
• Subjects: G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance; G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General; G - Financial Economics > G0 - General > G00 - General

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