Synergies between an Observed Port and a Logistic Company: Application of the Discounted Cash–Flow Model and the Monte Carlo Simulation

Abstract

The paper addresses an analysis of potential synergies in collaboration between an observed Port in the Mediterranean Sea and Central-European logistic railway-services based company. Both companies have established a strategic partnership. The main motive was cooperation in rail transport, with a particular emphasis on potential synergies that would a rail traffic have brought to a port’s business. For the purpose of synergies valuation under uncertain conditions, a Monte Carlo simulation-based framework with integrated discounted cash flow (DCF) model is applied. The possible values of future synergies are calculated via the DCF model by simultaneously changing values of different uncertain financial parameters at each repetition of a Monte Carlo scenario-playing mechanism. In this process, predicted forecasts of future synergetic throughputs are also used for various types of observed cargo. As it turned out, the generated synergies’ values follow the approximate normal distribution. Based on statistical inference and analysis of probability intervals it was discovered that there might indeed exist certain important synergies in the collaboration between both companies. This fact has convinced us into a belief in the correctness of companies′ decision to enter into such kind of strategic cooperation.

If the inline PDF is not rendering correctly, you can download the PDF file here.

  • [1] E. Todeva and D. Knoke, "Strategic alliances and models of collaboration", Management Decision, vol. 43, no. 1, pp. 123-148, 2005.

  • [2] J. Czaja, "Examples of Successful Strategic Alliances", Smallbusiness.chron.com, 2016. [Online]. Available: http://smallbusiness.chron.com/examples-successful-strategic-alliances-13859.html. [Accessed: 21- Jun- 2016].

  • [3] N. Kovačić, D. Topolšek and D. Dragan, "Tourism sector, Travel agencies, and Transport Suppliers: Comparison of Different Estimators in the Structural Equation Modeling", Logistics & Sustainable Transport, vol. 6, pp. 11-24, 2015.

  • [4] G. Beneke, W. Schurink, and G. Roodt, "Towards a substantive theory of synergy", SA Journal of Human Resource Management, vol. 5, pp. 9-19, 2007.

  • [5] A. Damodaran, Investment valuation, 2nd ed., New York: Wiley, 2002.

  • [6] A. Damodaran, The Value of Synergy, New York: Stern School of Business, 2005.

  • [7] V. Dragota and I. M. Dragota, "Models and indicators for risk valuation of direct investments", Economic computation and economic cybernetics studies and research, 43(3), 69-75, 2009.

  • [8] C. P. Schumann, "Improving Certainty in Valuations using the Discounted Cash Flow Method", Valuation Strategies Magazine, vol. 10, pp. 4-13, 2006.

  • [9] G. Pfefer and U. Kusiatin, "The Path to Strategic Manufacturing Flexibility", 2Value Consulting Group Inc.©

  • [10] M. Jeffery, "Return on Investment Analysis for E-business Projects", The Internet Encyclopedia. John Wiley & Sons, Inc., 2004.

  • [11] W. Knull, S. Jones, T. Tyler and R. Deutsch, "Accounting for Uncertainty in Discounted Cash Flow Valuation of Upstream Oil and Gas Investments", Journal of Energy & Natural Resources Law, vol. 25, no. 3, pp. 268-302, 2007.

  • [12] S. Lifland, "Creating a Dynamic DCF Analysis: A Detailed Excel Approach Utilizing Monte Carlo Methodology", Journal of Higher Education Theory and Practice, vol. 15, no.2, pp. 56-66, 2015.

  • [13] S. Jayaraman, "A Review of Monte Carlo Methods in Real Estate", State University, Florida, 2013.

  • [14] F. Steiger, The Validity of Company Valuation Using Discounted Cash Flow Methods, European Business School, 2016.

  • [15] M. A. Mehari and J. R. Turner, A Monte Carlo comparison between the free cash flow and discounted cash flow approaches, Tinbergen Institute Rotterdam, 2002.

  • [16] M. Yang, "Modeling Investment Risks and Uncertainties with Real Options Approach", International Energy Agency Working Paper Series, vol. 13, pp. 1120-1137, 2007.

  • [17] T. Copeland and J. Weston, Financial theory and corporate policy. Reading, Mass.: Addison-Wesley, 1988.

  • [18] A. Damodaran, Corporate finance: theory and practice, 2nd ed., New York: Wiley, 2001.

  • [19] H. I. Ansoff, Corporate Strategy: an Analytic Approach to Business Policy for Growth and Expansion, New York: MacGraw-Hill, 1965.

  • [20] A. De Graaf, "Quantifying Synergy Value In Mergers And Acquisition", Msc, University Of South Africa, 2010.

  • [21] S. Chatterjee, "Types of synergy and economic value: The impact of acquisitions on merging and rival firms", Strat. Mgmt. J., vol. 7, no. 2, pp. 119-139, 1986.

  • [22] T. Koller, M. Goedhart and D. Wessels Valuation - measuring and managing the value of companies, New Jersey: John Wiley & Sons, 2005.

  • [23] R. G. Eccles, K. L. Lanes and T. C. Wilson, "Are You Paying Too Much for That Acquisition?", Harvard Business Review, vol. 77, pp. 136-146, 1999.

  • [24] S. Knoll, Cross-business synergies. Wiesbaden: T. Gabler, 2008.

  • [25] H. E. Johnson, "Placing a Value on Synergies and Strategic Advantage," Campbell Valuation Partners Limited Toronto, 2002.

  • [26] S. Loomer, C. A. Cbv, and A. Harington, "Sharing Synergies", Duff & Phelps, 2014. [Online]. Available: http://www.duffandphelps.com/insights/publications/index. [Accessed: 25- Jun- 2016].

  • [27] L. Miles, A. Borchert and A. E. Ramanathan, "Why Some Merging Companies Become Synergy Overachievers", Bain&Company, 2014. [Online]. Available: http://www.bain.com/publications/articles/why-some-merging-companies-become-synergyoverachievers.aspx. [Accessed: 24- Jun- 2016].

  • [28] J. A. Weber and U. M. Dholakia, "Including Marketing Synergy in Acquisition Analysis", Industrial Marketing Management, vol. 29, pp. 157-177, 2000.

  • [29] F. David, Strategic management. Upper Saddle River, N.J.: Prentice Hall, 2011.

  • [30] G. Bernile and E. Lyandres, "Merger Synergies Along the Supply Chain", European Winter Finance Summit, vol. 201, no. 1, 2011.

  • [31] A. Damodaran, Investment valuation. Hoboken, New Jersey: Wiley, 2012.

  • [32] A. Damodaran, "Valuation Approaches and Metrics : A Survey of the Theory and Evidence", Stern School of Business, pp. 1-77, 2006.

  • [33] J. Bergh and J. de Neergaard, "Valuing synergies", Bachelor thesis, University Of Gothenburg School Of Business, Economics And Law, 2011.

  • [34] A. Damodaran, Applied corporate finance, New Jersey: John Wiley & Sons, 2010.

  • [35] S. P. Pratt, Valuing a Business: The Analysis and Appraisal of Closely Held Companies, 5th ed., England: McGraw-Hill, 2008.

  • [36] C. M. Mellen and F. C. Evans, Valuation for M&A: Building Value in Private Companies, New York: John Wiley & Sons, 2001.

  • [37] D. B. Hertz, "Risk analysis in capital investment", Harvard Business Review, vol. 42, pp. 95-106, 1964.

  • [38] J. Akhtar, Production Planning and Control with SAP ERP. Bonn: Galileo Press, 2013.

  • [39] D. Laurentiu, "Determination Of Residual Value Within The Cost Benefit Analysis For The Projects Financed By The European Union", The Annals of the University of Oradea, vol. 1, pp. 354-360, 2011.

  • [40] B. C. Benninghoff, "Discounted Cash Flow Method", Users.wfu.edu, 1998. [Online]. Available: http://users.wfu.edu/palmitar/Law&Valuation/chapter5/Documents/Steiner-v-Benninghoff-fullcase.html. [Accessed: 24 Jun- 2016].

  • [41] B. Remillard, Statistical methods for financial engineering, Boca Raton, FL: CRC Press, 2013.

OPEN ACCESS

Journal + Issues

Search