What are the valuation methods for an M&A / Investment related case?

Question

Hi,

May I know what are the common valuation methods that are used or we can suggest in an M&A or investment-related case?

When or how can we use them? For example NPV, etc.

Answer 1

Hi there,

The most common is NPV. You can also take market cap/value (share price times shares). The default for M&A is NPV.

Here are some helpful Q&As on the topic:

https://www.preplounge.com/en/consulting-forum/valuing-a-company-10550

https://www.preplounge.com/en/consulting-forum/technical-interview-about-ma-wacc-formula-for-a-private-company-9921

https://www.preplounge.com/en/consulting-forum/investment-cases-ma-pe-hf-differences-9236

https://www.preplounge.com/en/consulting-forum/private-equity-value-creation-interview-what-to-expect-and-how-to-structure-answers-8871

https://www.preplounge.com/en/consulting-forum/upcoming-big-4-ma-carve-outpmi-interview-10418

Answer 2

The two most common valuation methods are

Discounted cash flow method: Estimate future cash flows of the company and discount by the weighted avg. cost of capital (WACC)
PE multiple: Estimate PE ratio (competitor or other closely related company) and multiply estimated earnings of your company with the PE ratio

Answer 3

NPV / DCF (Net Present Value or Discounted Cash Flow)
EV/EBITDA multiples based on similar companies
P/E multiples based on similar companies
Dividend discount model

Happy to give you a step-by-step walkthrough of NPV over DM. Feel free to message me.