Valuation In M&A: How To Select The Right Model – Cody Biggs

 

Valuation In M&A: How To Select The Right Model - Cody Biggs

As the late business magnate Warren Buffett once said, “Price is what you pay. Value is what you get.” In the world of mergers and acquisitions (M&A), this value-based approach to valuation has certainly stood the test of time thanks to how it helps process buyers identify potential returns while protecting against downside risk with any particular deal. With so much on the line, selecting a model that accurately assesses both current and future value should be one of your primary areas of focus when looking at M&As — something which can be more easily achieved by having a good understanding of valuation principles. Here, Cody Biggs discusses some different methods for evaluating an acquisition based on their associated risks and rewards in order to ensure that buyers are getting good value for money.

Cody Biggs On Valuation In M&A: How To Select The Right Model

Valuation in M&A is an important aspect of the deal process, says Cody Biggs, as it can determine whether a transaction takes place and how much money each party gets. It also affects tax implications, which could have a significant impact on both parties involved. There are several models used to calculate valuation in M&A deals, each with different levels of accuracy and complexity, so it’s important to select the right model for your particular situation.

The most commonly used models for valuing companies in M&A transactions include discounted cash flow (DCF) analysis; comparable company analysis (CCA); sum-of-the-parts valuation; liquidation value approach; merger arbitrage analysis; and book value methodology.

The DCF analysis is a complex model that takes into account the cash flows generated by the target company, as well as its expected growth rate. It’s typically used for larger and more mature companies, and it allows you to adjust the inputs (such as the discount rate or terminal value) to see how different values affect the overall valuation. 

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