Mergers & Acquisitions For Dummies

Chapter 12

Crunching the Numbers: Establishing Valuation and Selling Price

IN THIS CHAPTER

Looking at a company’s value

Settling on an asking price

Addressing differences in valuation

Considering renegotiation

Unlocking the mysteries of how to know what to pay for a company was one of the reasons I became interested in entrepreneurship. Valuation is at the core of mergers and acquisitions. After all, if both sides can’t agree to price, no deal happens.

In this chapter, I introduce you to the concept of valuation: how to determine it, why it’s important, why Buyers pay what they pay, and how Sellers can create a more compelling valuation.

What’s a Company Worth? Determining Valuation

Valuation (the price one party will pay another for a business) is based on what you can negotiate. That’s why I include some negotiating thoughts in Chapter 11. And, as with most negotiations, valuation is more art than science. In fact, I call it alchemy because valuation is often subjectivity masquerading as science and logic.

Valuation is really the intersection of cash flow and time. In other ...