CHAPTER 4
How Much Do I Need?
Valuation and Synergy
Valuation remains a cornerstone of any discussion of M&A. Nobody intends to overpay for a deal, yet the evidence continues to challenge the results from typical valuation approaches, especially discounted cash flow (DCF). Of course, DCF is rooted in finance theory and applications. Properly used, it forces enumeration of specific beliefs about the future and the business case for a deal.
But DCF can be improperly used and can lead to predictable problems. We propose a sanity check for what acquirers are assuming when they make a bid and what they are promising to deliver when the deal closes—whatever the value they arrive at. Once an acquirer closes a deal, they have fixed the price of ...
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