Valuation of the Target Company in the Process of the Mergers and Acquisitions using Discounted Cash Flow Method
Author(s): Jaroslav Sedláček, Petr Valouch
Abstract: Mergers and acquisitions are a used and respected alternative to a company’s organic growth and they are a significant channel of capital redistribution. The actual process of company combinations is performed in more possible forms and it is affected by a number of factors of local, regional, national and global character, which may not lead to a successful end. It is an investment that does not occur in a company’s life very often. The process can be divided into three stages: preparation and plan; implementation; and integration. The key factor of the first stage is the establishment of the value of the target company as a basis for successful negotiations. The implementation stage is a stage of analyses. At the third stage the acquiring business manages the demanded changes in the acquired business. The aims of this paper are to analyse valuation methods and outline the procedure for using the discounted cash flow method adapted to the conditions of the Czech M&A market. Especially risk factors and their reflection in the valuation method are considered.
Keywords: Mergers and acquisitions, planning, implementation, integration, due diligence, target firm, methods of valuation, discounted cash flow method
Pages: 747-756WSEAS Transactions on Business and Economics, ISSN / E-ISSN: 1109-9526 / 2224-2899, Volume 11, 2014, Art. #70