Estimating the value creation probability of mergers and acquisitions events using option pricing models Evidence from Europe and USA

Abstract

Abstract This paper is proposing a new research approach to mergers and acquisitions value creation analysis. By using option pricing models we propose a new methodology on how mergers and acquisitions decisions can be analyzed using a quantitative approach, especially suitable for conglomerate type of mergers and acquisitions, where cost and revenue synergies do not represent a direct or visible financial benefit. Currently, the M&A research field is focusing mainly on the stock returns or cost synergies by the horizontal types of M&A events. The main implications of the results presented in this paper can confirm whether the top 20 M&A events that have taken place in the USA and Europe in the last 20 years were ones with high probability of value creation. In the future, this can become an important analysis point useful for the investment banking industry when evaluating M&A investments. On top, it can expand the field of research in the M&A environment.