A simulation on the presence of competing bidders in mergers and acquisitions

Abstract

The current paper applies Monte Carlo simulation on the presence of competing bidders in mergers and acquisitions. We present a new approach for quantifying uncertainty and use a Brownian model where “the presence of a competing bidder” is the random variable. Our model sets its boundaries by employing physical random number generators. The calculation of boundaries enables the simulation of “certainty” about the presence of a competing bidder, and thereafter, the prediction of the geometric Brownian motion path. We use difference in country and industry as proxies for uncertainty and incorporate them into the model. By applying a sample of 3278 acquisitions we find that the slope of the geometric Brownian motion is increasing.