Abstract
Abstract: Pre-acquisition target screening is a task that often needs to be madefast, but is still complex, especially due to the need to estimate the value of possiblesynergies arising from an acquisition. Acquisition synergies are highly uncertain, dif-ficult to explicitly quantify, and require successful management actions to be realized.The valuation of synergies calls for methods that can handle both, high uncertaintyand inexact information. This paper discusses how a rapid pre-acquisition screeningof target companies can be performed with the pay-off method for real option valua-tion, treating the acquisition synergy as a real option available for the acquirer. Thepay-off method is a simple, intuitive, and practitioner friendly method. We define ac-quisition synergy as the value arising from resource redeployments within the newlyformed entity of the target and the acquirer, and as the value gained through thepossible divesture of target company assets. The procedure presented can be used inthe screening of prospective acquisition target companies.Keywords: Acquisitions; synergy; real options; screening; pay-off method
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