Current global theories, trends and developments in the analysis and valuation of a target company

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.