The Fuzzy MCDM Algorithms for the M&A Due Diligence

An M&A due diligence is the process in which one of the parties to the transaction undertakes to investigate the other in order to judge whether to go forward with the transaction on the terms proposed. It encompasses the missions in three phases: searching and preliminary screening potential candidates, evaluating the candidates and deciding the target, and assisting the after-transaction integration. This work suggests using a Fuzzy Multiple Criteria Decision Making approach (Fuzzy MCDM) and develops detailed algorithms to carry out the second-phase task. The approach of MCDM is able to facilitate the analysis and integration of information from different aspects and criteria. The theory of Fuzzy Sets can include qualitative information in addition to quantitative information. In the developed algorithms the evaluators’ subjective judgments are expressed in linguistic terms which can better reflect human intuitive thought than the quantitative scores. These linguistic judgments are transformed into fuzzy numbers and made subsequent synthesis with quantitative financial figures. The order of candidates can be ranked after a defuzzification. Then the acquiring firm can work out a more specific study, including pricing and costing, on the priority candidates so as to decide the target.