UMS M & A Valuation of the EL Co., Ltd.
|School||South China University of Technology|
|Keywords||Mergers and Acquisitions(M&A) Company Valuation Discounted Cash Flow Model Intrinsic Value|
Valuation of target enterprise plays an important role on enterprise merger and acquisition, which not only has direct influence on the transaction value but also is a key to successful mergers. Therefore strengthening research in valuation will support to improve the success rate of enterprise merger and acquisition. In 2009, for the purpose of coordination with group strategy and support a robust growth of the company by promoting shareholding system reforms as well as actively researching the route of company listing in the future, at the meeting of board of directors UPAY group proposed and approved to integrate same businesses of its two unlisted holding subsidiaries in accordance with the group general plan. Consequently UMS shall merger EL by absorption so as to fully own EL.The thesis studies the intrinsic valuation of EL as a target company from the view of UMS as an acquiring company. By analyzing and comparing common methods of company valuation, the thesis chooses the two-stage model of discounted cash flow as the method to evaluate the intrinsic valuation of the target company. On closer analysis and discourse to the model as well as valuation thoughts, the thesis comes to a conclusion of concrete applicable procedure and evaluates the intrinsic value of EL. Based on the analysis from both the inside and exterior environment of target company EL, the thesis evaluates the intrinsic value of EL on the basis of its financial statements in 2006 to 2009. Through the analysis on its business, it is found that exterior environment’s positives are more than negatives to the future acquiring ability of EL. Moreover, exterior environment has particularly supports to its future profit growth. EL has several advantages that it is clearly defined, product system is gradually and pertinently perfected, healthy operating status, vitally concerned marketing and technical research as well as operating of cash flow, vantage of proprietary technology and preferential tax policy so that its incomes and profits showed significant advances. The target company EL is expected to continuously increase including its market share owing to the development of third party payment and due to various payment methods are gradually familiar and acceptable to consumers. As a result of valuation, on 31st December 2009 the intrinsic value shall be RMB28,428, and then calculation of per share shall be RMB11.37. At last through sensitivity analysis on the result of valuation, it is found that the result is sensitive to four factors: income growth rate of primary business, gross profit rate, sustainable growth rate and costs of operating capital. Fluctuation of primary business growth rate has considerable positive correlation to valuation, whereas the change rate of gross profit has greater influence than primary business growth rate. Consequently more efforts shall be invested to forecast the change rate of gross profit, in the meantime shall strengthen forecast on primary business growth rate.By studying and analyzing the case of valuation in enterprise merger and acquisition, the thesis shall be able to provide a strong base for pricing of this merger and acquisition as well as for the decision making of enterprise managements, also could offer reference and instance to similar unlisted companies for their own valuation in merger and acquisition.