With the advent of the era of hyper-competition, an enterprise's survival environment has undergone great changes. As the speed of technology updating has become faster and faster and the competition of market has become more and more drastic, enterprises will be stuck in stagnation and even bankruptcy if it fails to keep pace with technology innovation or makes wrong management decision. An enterprise's financial distress would not only bring a harmful effect to itself, but also lead to losses of investors, creditors and other stakeholders. As a result, how to solve the financial distress has drawn more attention. The better way to solve financial distress is merger and acquisition, because the target firms can obtain money and technology from the acquirer firm. But for the acquirer firm, assessing distressed firm's value may faces greater risk. On the other hand, firm distressed M&A happens and implements in a short time, which leads to a limitation on time for the acquirer firms to take full consideration. Consequently, the acquirer firms should be more discreet about making the M&A decisions. In order to maximize the value of M&A, the acquirer firms have to select the optimal M&A timing and estimate the reasonable value of the acquired firms.
In this paper, the option game method is applied to improve the management flexibility of firm distressed M&A' decision making, as well as reduce the risk of firm distressed M&A to the maximum under the Hyper-competition environment. Due to the unique option game characteristics of the firm distressed M&A under the hyper-competitive environment, three Hyper-competition characteristic factors (the variables that lead to negotiation breakdown or the number of negotiation breakdown, competitive intensity and competitive uncertainty)and a firm distressed M&A characteristic factor are used to analyze the firm distressed M&A decision makings under the condition of one-time payment competitors exist. Meanwhile, those models are applied into practice to change the distressed firm's financial status and make the acquirer firms profit growth.
By means of the model calculation, case simulation and parameter analysis, several main conclusions are obtained as follows:
(1)Under the Hyper-competition environment, the firm distressed M&A value compensation ratio that the acquired firms are given by the acquiring firms and the optimal M&A timing of acquiring firms are influenced by the competitive intensity, the competitive uncertainty, the cognitive distance and the bargaining power of two parties of the M&A.
(2)Under the Hyper-competition environment, the optimal firm distressed M&A timing greatly depends on the relative value ratio between the acquiring firms and acquired firms, but is not directly related to the accumulated value of any relevant firms.
(3)Under the Hyper-competition environment, there are two unequal value of waiting options existing in the process of firm distressed M&A, which means there are two optimal M&A timings. The acquiring firms should implement the M&A when the relative value ratio between the acquiring firms and acquired firms increases from below the lower limit of the M&A threshold to the lower limit of the M&A threshold, or when it decreases from above the upper limit of the M&A threshold to the upper limit of the M&A threshold.
(4)Under the Hyper-competition environment, both the acquirer firms and target firms are willing to quote a price in advance and the acquirer firms occupy a position of advantage in the process of game.