Valuing M&A Synergies as (Fuzzy) Real Options

This paper views operating synergies as real options that acquiring companies have in the post-acquisition M&A process. The paper builds on the synergistic restructuring theory, which states that both acquisitions and divestitures are wealth-creating activities. Acquisition synergies are broadly defined as arising both from resource redeployments between the acquirer and the acquisition target company and the executed divestitures of target's assets within the post-acquisition process. We present a procedure to ex-ante calculate the first approximate value of the synergies in the screening stage of the M&A process. We argue that synergies are highly uncertain and require significant management actions and, for that reason, an appropriate method for the valuation is the fuzzy real options pay-off method, which is presented as an integrated part of a decision support system built for the screening of potential acquisition targets. The paper also discusses the ordering of acquisition candidates according to their total value based on the presented fuzzy measure