M&A valuation for going concern: A case study using Samsung electronics’ adjusted EBITDA Multiple

Jee Woung Hong, Jan Erik Meidell and Hyun-Jung Kim

Cogent Business & Management, 2023, vol. 10, issue 2, 2209975

Abstract: This study analyzes the limitations of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) Multiple from the perspective of the going concern principle. A new Adjusted EBITDA Multiple that complements the limitations of the EBITDA Multiple is generated and applied to real-world cases for comparison. EBITDA Multiple is used to assess if the target company is undervalued or overvalued; adjusted EBITDA Multiple is used to determine the time taken to recover the total acquisition cost of a company in an M&A transaction. Samsung Electronics, South Korea’s leading tech firm, is used as a case study to analyze financial information between 2017 and 2021. The result varied with the M&A decisions. Investment decisions in M&A are made considering the assets (debt + capital) to be assumed with the acquisition and additional investment costs for the target’s sustainable management. We propose a new valuation method for recovering M&A investment costs, considering the long-term sustainable growth of the acquired company.

Date: 2023
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DOI: 10.1080/23311975.2023.2209975

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