In recent months, we have observed stagnation in the capital markets. Many venture firms experienced hard time in financing their working capital and missed many opportunities in a new field. Venture firms, characterized by network externality, first mover's advantage and severance of an undertaking have been trying to survive through M&A as one of the most critical business strategies. Also offline companies have understood M&A activities as a path to business opportunities which have made their sustainable growth possible in the digital economy.
Several key factors in successful M&A project targeting online venture firm include accurate valuation of venture firm as a target, identification of the expected synergies generated from the deal and payment of the reasonable acquisition price based on valuing target and identifying the synergy.
The main part of this study consists of examining the determinants of the acquisition price for acquiring venture firms and the factors influencing on premium. The determinants of acquisition price consist of either of the following : 1)target's market value less its estimated bubble 2)target's market value plus its future value of opportunities 3)premium calculated from expected synergy adjusted by influence factors. Estimated bubble or underestimated value of target compared with its market value can be computed by outcome of valuing target firm using by real option pricing or comparison with similar firms.
Quantitative analysis of expected synergy was performed by a hypothesis - expected possible synergy is represented as a function consisted of complementary effect, mutual need of acquisition and flexibility of both organizations. Complementary effect is possible synergy, and this can be generated from the M&A project without considering other influencing factors. This effect can be represented as ratio(range:0~1) where synergy value divided by per simple value-summation of both firms' 4 value-generating units which are operating field, financial field, managerial field and manufacturing & research and development field. Mutual need of acquisition is explained as degree(range:0~1) of wants-positive or negative. Flexibility of organization is represented as degree(range:0~1) of mutual acceptance.
Based on outcome from calculating synergy value, range of premium is reckoned by considering influencing factors - types of payment, distribution of shares, market situations, competition in acquiring activity, deal value, mode of M&A and EPS(earning per share) of target. This range of premium is adjusted by bubble or value of opportunities compared with market value of target.
The purposes of this study are to call attention to critical role of determining an acquisition price in successful M&A and to provide ideas in producing fair acquisition price.
