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Playing at AcquisitionsBehavioral Option Games$
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Han Smit and Thras Moraitis

Print publication date: 2015

Print ISBN-13: 9780691140001

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691140001.001.0001

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Strategy as Options Games

Strategy as Options Games

Chapter:
(p.75) Chapter 4 Strategy as Options Games
Source:
Playing at Acquisitions
Author(s):

Han Smit

Thras Moraitis

Publisher:
Princeton University Press
DOI:10.23943/princeton/9780691140001.003.0004

This chapter develops a framework for assessing the value generated by both the option-like and competitive characteristics of an acquisition strategy. The conceptual approach is based on real options and principles from game theory. It illustrates the approach with an example of how real options and games thinking were used in strategic decision making at a major pharmaceutical company. The method treats an acquisition strategy as a package of corporate real options actively managed by the firm in a context of competitive responses or changing market conditions. This framework can help management answer several questions that are important for a successful acquisition strategy: How valuable are the growth opportunities created by the acquisition? How can we best sequence the acquisition options in the strategy? When is it appropriate to grow organically, and when are strategic acquisitions the preferred route? How is the industry likely to respond, and how will that affect the value of our acquisitions and future targets? The subsequent sections present a series of frameworks to address these questions.

Keywords:   valuation, acquisition strategy, game theory, real options, strategic decision making

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