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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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Dual Real Options Valuation

Dual Real Options Valuation

Chapter:
(p.101) Chapter 5 Dual Real Options Valuation
Source:
Playing at Acquisitions
Author(s):

Han Smit

Thras Moraitis

Publisher:
Princeton University Press
DOI:10.23943/princeton/9780691140001.003.0005

This chapter discusses the application of the top-down and bottom-up duality of the real option frameworks to valuing serial acquisitions. It develops the market-based present value of growth options (PVGO) method into a framework that directly connects serial acquisition strategy to value creation on financial markets, and so helps to explain the full market value of companies in consolidating industries. In addition, in a bottom-up approach, it considers acquisitions as portfolios of interrelating acquisition options, each stage being an option on the next, which can develop the firm's asset base dynamically and opportunistically. This dual approach to value acquisition programs is called the market method for acquisitions.

Keywords:   real option theory, market value, acquisition strategy, valuation

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