Determination of valuation techniques for target company on trading / services sector / Noor Azizah Zi

Mergers and acquisitions activities have played an important role in the growth of the firms and these activities have become popular in Malaysia. Determination and valuation of target companies are important in order to determine appropriate purchase price for mergers and acquisitions activities to be successful and beneficial to those parties involved. The rational of mergers and acquisitions suggest that the acquirer company expects the acquisition to generate positive return rather than any other motives. This paper examines the valuation techniques or approaches that are being used to value the target company in Trading / services sector, which is listed on Kuala Lumpur Stock Exchange main board. The valuation emphasised on the liquidation value approach, the comparable value approach and the discounted cash flow approach to determine whether the target company companies were purchased based on value maximising behaviour. The three approaches mentioned before are suitable to apply in determining the value of target companies on trading / service~ sector. It was found that 6.67 % of the sample showed the value of company was above the purchase price by using liquidation and comparable value approach. By using discounted cash flow, only 13.33 % of the sample transacted below the value of the company. The comparison between sectors in KLSE main board indicate that certain approach are suitable to certain sector, depending on the nature ofthe sectors or companies.