The Synergy Valuation Models : Towards the Real Value of Mergers and Acquisitions

The purpose of this paper is to examine the use and effectiveness of synergy valuation models in mergers and acquisitions (M&A). This paper advances the current debate on synergy and valuation models in accounting and finance studies. In particular, it answers the call for a detailed investigation of the failure rates of mergers and acquisitions, which have remained consistently high.Relevant literature is reviewed and critically assessed. An interpretive methodology is used to analyze empirical data from a questionnaire survey and interviews of M&A experts. M&A experts perceive net present value as the most frequently used and most appropriate valuation model. There is a strong consensus on the simultaneous use of multiple models as control models. The effectiveness of the synergy value depends more on the valuation path and the assessment process than on the models used. The strategic factors that are considered very relevant to generating reliable forecasts are, surprisingly, not adequately quantified. Indeed, there are several mismatches in valuation practices. This set of contributions is important for both scholars and practitioners. We highlight that the synergy assessment process and the effective use of synergy valuation models are critical points to cut the failure rate of mergers and acquisitions Our findings show the need to warn firms of the potential risks of inaccurate synergy estimations and, at the same time, suggest that an effective synergy assessment model have to be developed to increase the likelihood of M&A success. This is the first comprehensive investigation of synergy valuation models in M&A. The findings recommend that synergy valuation processes must rely on knowledge and experience from accounting as well as from other disciplines such as finance and management