The M&A markets use four methodologies to assess the worth of most acquisition candidates. The methodologies are discounted cash flow, comparable public companies, comparable acquisitions, and leveraged buyout.
Now that we have studied historical financial analysis and financial projections, it’s time to gain an understanding of the methods by which buyers justify acquisition prices. In this chapter and subsequent chapters, we review the four approaches that instill a discipline in the M&A market.
Four Business Valuation Methodologies in the M&A Industry
These methodologies have pros and cons that are summarized here.
The pros of DCF are:
The cons of DCF are: