Use of a Real Option Model for Assessing Synergy Effects in M&A: Empirical Case DSV's Acquisition of Panalpina

Selcuk Yildiz & Mohammed Jamal El-Tahra

Student thesis: Master thesis


The purpose of this dissertation is researching to which degree equity analysts can apply real option’s models for the purpose of enlightening the synergy effects of M&A. It was found that the analysts’ preferred model for assessing synergy effects is the DCF-model. Though this model is a static model, which means it does not take management flexibility into consideration. Equity analysts make use of Decision Tree Analysis and sensitivity analysis in situations where management flexibility can be present. These two tools are not suited to quantify this flexibility very precisely, which led to researching whether a real option model could do this instead. After an examination of available real option models it was decided that the Fuzzy-method would be most suited to show the synergy effects of M&A. The object of the empirical case study was DSV’s purchase of Panalpina in an effort to test whether the Fuzzy-method as a supplement to the DCF-model would be applicable to synergy effects. In the case study an assessment of the synergy effects using the DCF-model was also made in order to be able to compare the results of both approaches. The synergy effects which were assessed in the case study were cost synergies, which DSV’s purchase was based on. The conclusion of the dissertation is that the Fuzzy-model is not appropriate for the assessment of cost synergies when only public information is accessible. This can lead to the equity analysts making systemic errors when using the Fuzzy-method. The DCF-model, seen from an isolated perspective, is more well suited for the evaluation of cost synergies. The Fuzzy-method may be more usable for equity analysts in order to assess revenue synergies. This is because revenue synergies can unfold in several different ways, which is why these have unlimited value, which can mean the equity analysts may not be as prone to making systematic errors when using the Fuzzymethod. In the perspectivation part of this dissertation it was emphasized that researching whether the Fuzzy-method would be better suited as a tool for internal decision making for companies involved in M&A may be relevant in assessing cost synergies. This must be viewed in light of the company’s internal information being well suited to avoiding systemic errors.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2020
Number of pages173