The Use of Fuzzy Assessment Models in the Evaluation of Financial Risks Concerning Mergers and Acquisitions in the Decision Making Process

This paper uses fuzzy assessment models in the evaluation of financial risks concerning mergers and acquisitions in the decision making process. Becoming a bigger brand as a small company could be very difficult. One of the quickest and most effective ways of achieving this objective is through mergers and acquisitions. Mergers and acquisitions have been applied widely in many corporations. They seem to be one of the most important strategies of corporate expansion and growth, also known as an external capital investment. Mergers and acquisitions normally create value to shareholders and corporations. Researchers on searching and screening target companies to solve the realistic problems of selecting target companies in the process of mergers and acquisitions have been considered. This paper conducts fuzzy assessment models in a decision making process to investigate target companies, specifically in the packaging and media & publishing sectors of Thailand. This investigation may be effectively helpful in choosing the best target company. These mergers and acquisition activities are full of high risk that exists throughout the process. Financial risk is one of the most important factors in merger and acquisition activities. Therefore, the investigation of those risks has become important. This paper analyses some financial risk factors, such as net profit margin and EPS, then used them in combinations to establish a fuzzy assessment model in order to measure the willingness to invest (Willingness to mergers and acquisitions or WTM&A) on a corporation. This result will be used to define whether the merger and acquisition on a target worth to be undertaking. The theory of Fuzzy Sets including qualitative information in addition to quantitative information is incorporated. In the developed models, the evaluators’ subjective judgments are expressed in linguistic terms that better reflecting human intuitive thought than the quantitative scores. These linguistic judgments are transformed into fuzzy numbers and made subsequent synthesis with quantitative financial figures. Then, the order of candidates can be ranked after a defuzzification. Finally, the acquiring firm can work out a more specific study, including pricing and costing, on the priority candidates so as to decide the best target