This document discusses mergers and acquisitions (M&A) and company valuation, with a focus on digital companies and unicorns in Romania. It analyzes Romanian e-commerce company eMAG, which was acquired by Naspers and became Romania's second unicorn startup. The purpose is to understand what drives company value and success by studying highly valued startups. It explores theories on maximizing long-term company value and discusses factors like control premium, management quality, and optimal capital structure that influence M&A valuation. Methods like discounted cash flow are presented for valuing companies undergoing M&A transactions.

1. Abstract. This paper aims to challenge the
conventional wisdom in economics by
studying the development of unicorn
companies as the most successful and
fastest-growing start-ups. Romania is now
on the map of the International Unicorn
Club, with two young Unicorns in
technology since 2018. The purpose of the
paper is to analyze mergers and acquisitions
and trying to answer the research question:
What is the value of control in mergers and
acquisitions?
the research design and methodology.
The work to be discussed in the paper is the
importance of choosing one valuable
objective of the company, in the context of
the theory of the value maximization as the
single important objective of a company.
a concise summary of the findings.
between 150 and 250 words.
Keywords: value, revenue, target, e-
commerce, control, M&A, EBITDA.
THE VALUE OF THE NEW
BUSINESSES FROM THE DIGITAL
ECONOMY: CASE STUDY FROM E-
COMMERCE
Mădălina Viorica MANU
The Bucharest University of Economic Studies,
Council for Doctoral Studies (CSUD),
Bucharest, Tache Ionescu Street, no.11, floor 1,
room 8102, Romania
E-mail: mvmadalina@yahoo.com
Vlad BRĂTĂŞANU
The Bucharest University of Economic Studies,
Council for Doctoral Studies (CSUD),
Bucharest, Tache Ionescu Street, no.11, floor 1,
room 8102, Romania
E-mail: vlad.bratasanu@gmail.com
Ilie VASILE
The Bucharest University of Economic Studies,
Council for Doctoral Studies (CSUD),
Bucharest, Tache Ionescu Street, no.11, floor 1,
room 8102
E-mail: vasile.ilie@fin.ase.ro
Management & Marketing
Challenges for the Knowledge Society
(20xx) Vol. x, No. x, pp.xxxx

2. 1. Introduction
This article is a minor extension of the authors research [1] on the enterprise value and its
determinants, in order to understand the ways to increase it or maximize the company value,
while considering the theory of value maximization as the single important objective of a
company. This paper starts from professor Jensen (2002) theory that it is impossible to
maximize in more than one dimension according to, the criterion for deciding when
implementing organizational change should be the increase in the long-term market value of
the firm, i.e. ‘the sum of the values of all financial claims on the firm, including equity, debt,
preferred stock, and warrants’. (Jensen 2002)
In the actual economy, Romanian companies fight hard to find their way to success (or
survival), in the absence of one valuable objective of their entire activity, while other start-
ups or established firms manage to evolve rapidly, independently or within an international
large and successful group. In 2009, eMAG was a small e-commerce company focused on IT,
with a monthly revenue of less than 2 million euros, but with a dream to cross borders with
technology and to be a platform where people could buy anything. The company mission was
to build a service that the customers would love (Naspers 2019). The largest retailer online in
Romania [2] now is part of the Naspers group, since October 2012 and became profitable in
the second half of the 2018 financial year and a major driver of the revenue improvement;
eMAG delivered a solid performance, with gross merchandise value (GMV) growth with
both the retail and marketplace businesses, improved profitability year on year, boosted by
increased gross profit margins and cost control (Naspers 2018). In 2018, the Romanian e-
commerce company has become the 2nd
Unicorn in Romania, after UiPath [3].
The first Romanian unicorn The objective of UiPath, , is to enhance customer experience.
Created in 2015 on the foundation of the 10-year old Romanian software outsourcing
company [4], UiPath began orienting resources into training and orchestrating software
robots back in 2012, and one year later the company initiated its first RPA journeys, with
Sutherland and Dell. (UiPath 2019)
The purpose of the paper is to analyze the mergers and acquisitions, in order to challenge the
conventional wisdom in economics by studying the development of unicorn [5] companies as
the most successful and fastest-growing start-ups (Butuzova 2018). UiPath has raised more
than $400 million from tier one investors: Series A in April 2017 with 200 customers at a
valuation of $140 million, then another $153 million in March 2018 at a valuation of $1.1
billion. Closed in November 2018, UiPath’s Series C financing totals $265 million at a
valuation of $3 billion; it was led by CapitalG and Sequoia Capital. (UiPath 2019)
2. Problem statement
This paper is about companies that
We argue that Romanian companies find success when their are facing difficulties in the abs
Digital transformation remains top of the agenda as companies use M&A to add innovative
capabilities, improve customer engagement and stays relevant in a changing market;
renewables and network assets remain the most attractive acquisition targets and digitization
can influence transaction strategies in developed countries. 48% of the executives surveyed

3. cite digital innovation, the search for growth and sector convergence as the most prominent
topics on their agenda (Rennie 2017).
3. Literature review
Wruck, Jensen, and Barry (1991) give example of a small non-profit firm that almost
destroyed itself while trying to maximize over a dozen dimensions at the same time; Cools
and van Praag (2000) are the first to formally test the proposition that multiple objectives
handicap firms; in a test using 80 Dutch firms in the 1993-1997 period, the authors conclude:
"Our findings show the importance of setting one single target for value creation" (Jensen
2002).
Throughout our 100-year history, we have grown by investing in, acquiring and building
leading companies with sustainable competitive advantages. We continue to back new
business models to fuel our growth and increasingly, we look for opportunities to address big
societal needs in markets where we see the greatest growth potential. These include all major
markets in the world. Where we see a company with promise, we move quickly to expand
and scale it. (Naspers 2019)
The shift to a “knowledge society” and “the rise of knowledge work” previewed by Peter
Drucker are now facts. Discontinuities, such as the knowledge technologies, the changes in
the world's economy, a society of organizations and the knowledge society changed the
structure of the economy (Drucker 1969).
Advances in technology have improved access to real-time market information and business
analytics, improving communication and the integrated management of their operations;
improved telecommunications, information management software and personal computing
decreased significantly firm’ costs, enabling the creation of efficient business models, while
skills and talent remain a critical resource in the digital economy. Although digital services
can substantially expand the reach of businesses, they require massive investments in
infrastructure (OECD 2015). The next evolutionary step after knowledge economy is the
network economy, where the knowledge is shared across various networks, to gain economic
of scale in a wider scale. “The gradual evolution of network economy would create a well
interconnected economic order, which would then begin to concentrate on the passion of
individuals, gradually leading to a Passion based economy.” (Cluett 2016)
“Disruptive innovation” describes how new entrants target the bottom of a market and then
relentlessly move up, ousting established providers; they “begin by successfully targeting
those overlooked segments, gaining a foothold by delivering more suitable functionality—
frequently at a lower price. Incumbents, chasing higher profitability in more-demanding
segments, tend not to respond vigorously” (Christensen 2018). Companies such as Uber or
Amazon disrupted entire industries.
The technology giants (such as Apple, Google and Facebook) have achieved world
domination (Picture 1) by investing heavily in developing new products and services leading
to an explosion in innovation and faster growth and disrupting established companies. The
large technology companies benefit from globalization, accessing new markets and any
promising small company that could compete is quickly absorbed up by its larger rival. For
example, the top 10 companies in the world is now dominated by technology companies, as
in picture 1. (Johnston 2018)

4. Picture 1. The global rise of the ITC companies in 2018
Source: authors representation
Innovations that harness new technologies or business models or exploit old technologies in
new ways are emerging and the most disruptive enterprises do not gradually displace the
incumbents, but reshape entire industries, swiftly obliterating whatever stands in their way.
High-tech and innovative unicorns are drivers of development and their high capitalization is
indeed justified. The potential and growth opportunities of such companies are the main
drivers of their overestimated values. Investors are gazing at startups, which have not been
incorporated yet but still have a big potential for growth (Butuzova 2018). The number of
Unicorns is increasing. The Asian unicorn startups [6] wait for global business opportunities
to turn themselves into a unicorn’s den (Picture 2).
Picture 2. The International Unicorn Club as in September 2017
Source: (Johnston 2018)
0
100
200
300
400
500
600
700
800
900
890
768
680
592
545 526 496 488
380 375
43 21 44 25 15 21 64
20
133 148
Value (US$ bn.) company age

5. In picture 2, most of the 222 companies fall under E-commerce sector (17%), followed by
Internet Software and Services (14%) and FinTech (11%).
A Unicorn Club is a group of billion-dollar startups that are highly successful business
ventures with a revolutionary trade brand tagged to their business operations. Most of such
businesses exist in the USA, especially in San Francisco area. However, mighty Unicorn
startups exist outside the USA too. The main business models of the Asian unicorn startups
are: E-Commerce, Audience (website monetization through floating ads and leads like
Google), SaaS (user paid cloud-based software services) and Enterprise (companies that sell
and provide services for larger scale software). (GreenHouse 2018)
In 2005, eBay bought a small, marginally profitable communications company called Skype
for $3.1 billion, but Skype was worth only $1.7 billion and the company had to take a $1.4
billion charge against profits to account for the difference, and its stock plummeted. In
November 2010, eBay sold 70% of Skype to a group of investors (including the original
founders) for $1.9 billion, which meant that Skype as a whole was now worth about $2.7
billion. Then, in 2011, Microsoft bought Skype for a whopping $8.5 billion, even though
Skype at the time was still losing money. Why was eBay so wrong in its initial estimates of
Skype’s value? (Knight 2016)
One of the most critical elements in M&A is the valuation of companies as the success of an M&A is
closely related to determining the fair value of the companies. The Discounted Cash Flow Method in
M&A determines a company’s current value according to its estimated future cash flows and is often
used in the valuation of companies.Invalid source specified.
Communication with stakeholders does not support the processes of knowledge management and
innovation processes. Not treating communication with stakeholders as a basis for creating enterprise
value suggests depreciation of communication in managing surveyed entities, especially that the basis
of their functioning (external funding) is communication with stakeholders, e.g. clients or co-
developers of innovative basic processes. Improving/modernizing methods/tools of communication
with stakeholders is usually a cost for the surveyed enterprises than the source of development, e.g. in
the long run (Wereda and WOŹNIAK 2018).
In picture 4,
Picture 4. Comparison of the evolution of the M&A number of transactions and value in
Romania, between 2012-2017

6. Source: (CMS n.d.)
3. Method
According to professor (Damodaran), the value of control should be inversely proportional to
the perceived quality of that management and its capacity to maximize firm value, so the
value of control will be much greater for a poorly managed firm that operates at below
optimum capacity than it is for a well-managed firm.
Table 1
Acquisition motive Value target firm as
Control (of poorly
managed firms)
Value of Target Firm run optimally (industry averages)
Value of Control = Value of firm, with restructuring - Value of firm,
without restructuring
Manager’s Interest Value of Target Firm: No additional premium
Source: (Damodaran)
The 100% stacked column (figure 1)
Figure 2. A Pareto chart of the distribution of the stake
96%
97%
97%
98%
98%
99%
99%
100%
100%
2012 2013 2014 2015 2016 2017
The M&A Market in Romania
no. of transactions value (bn. $)

7. Source: author's representation
The pareto chart in figure 2 shows the importance of obtaining the control according to the
distribution of the data by the stake obtained.
In a local ranking of the companies (by address) dominated by retail companies (and the
Romanian economy) and auto, in table 1, the only e-commerce company is the one we study.
Table 2. Local top firms by turnover
Name
turnover
(mil. Lei)
turnover
(mil. euro) activity
AUCHAN ROMÂNIA SA 5200,00 1200,000 retail
MEGA IMAGE SRL 4900,00 1100,000 retail
DANTE INTERNATIONAL SA
(known as EMAG) 3300,00 752,300 e-commerce
RENAULT COMMERCIAL ROUMANIE SRL 3100,00 697,300 auto
FARMEXPERT D.C.I. SRL 3000,00 671,500 pharma
ELECTROCENTRALE BUCURESTI SA 1700,00 395,000 energy
IBM ROMANIA SRL 906,7 206,100 ITC
ROUMASPORT SRL 760,6 172,900 retail
BRICOSTORE ROMANIA SA 696,1 158,200 DIY
SIEMENS SRL 510,6 116,000 equipments
C.N."IMPRIMERIA NATIONALA" SA 434 98,600 Printing
JYSK ROMÂNIA SRL 415,2 94,400 retail
AUTO ITALIA IMPEX S.R.L. 372,4 84,600 auto
TRUST MOTORS SRL 368,8 83,800 auto
RODBUN GRUP SRL 334 75,900 agriculture
Source: (TopFirme 2018)
Table 3. Stand Alone Valuation: Digital - Status Quo
Year/ company 1997 (for Digital) 2017/Naspers 2018/Naspers (incl.

8. emag)
EBIT (million $) 391.38
pre-tax operating margin (%) 3
revenues ($ million) 13,046 3105 3344
after-tax return on capital (%) 8.51
beta 1.15 1.63
after-tax cost of borrowing
(%)
5
debt ratio (%) 10
Cost of Equity (%) = 6% +
1.15 (5.5%)
Cost of Capital (%)= 12.33%
(.9) + 5% (.1)
12.33
11.59
Source: authors calculations after (Damodaran n.d.), (Naspers 2018)
4. Results
Despite the fact the company was not reporting profit,
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1 etimm (2018) Current issue. Journal of Emerging Trends in Marketing and Management.
http://www.etimm.ase.ro/?p=31
2 eMAG, founded in 2001, has now extended in Bulgaria and Poland, too.
3
4 DeskOver was started by Daniel Dines and Marius Tirca in Bucharest.
5 In the world of business corporations and conglomerates, the term Unicorn refers to those startup companies
that have a total valuation of more than a billion dollars.
6 once called “dragons”