Abstract
Purpose: the aim of this paper is to perform a thorough, in-depth and current literature review on Mergers & Acquisitions. The emphasis is on the current global theories, global trends and developments within the last 10 years and so in the valuation of a potential takeover of a target company. Discussion: mergers and acquisitions are considered as one of the tools for improving business efficiency. At the same time, a merger and acquisition transaction is justified if there is a synergistic effect. However, recent studies have shown that the most common reasons for an inefficient acquisition are the overestimation of the target company and the synergy effect associated with this acquisition. Thus, the valuation of the target company is the most important aspect at the planning stage of the mergers and acquisitions process. Results: the paper provides a critical review of the literature examining the synergy theory and the development of Tobin’s Q-theory, current global trends in mergers and acquisitions, discounted cash flow analysis, and market multipliers in order to improve the valuation of the acquired company.
Highlights
The primary motivation for the M&A is the maximisation of shareholder value
Considering the enter-timing perspective [9; 10], emerging markets firms (EMFs) have to acquire knowledge and assets in developed economies to catch-up with multinational companies [1, 22]
This trend could create a new merger wave mostly placed within EM, as the US economy and other developed countries have a high probability of recession (Table 2)
Summary
The primary motivation for the M&A is the maximisation of shareholder value. Companies should pursue an acquisition only if it creates value, which could be justified by the presence of a synergy effect. Recent studies [8, 23] have indicated that the most frequent reasons for an acquisition’s failure are overestimation of the target’s value and the synergy effect associated with the acquisition. The valuation of a target company is a critical aspect in the planning stage of the mergers and acquisitions process. We consider synergy theory and development of Tobin’s Q theory, the current global trend in M&A, discounted cash flow analysis and market-based multiples as improvement of target’s valuation
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