Business Valuation for Acquisition
6 comprehensive valuation methods to determine fair acquisition price
📊Valuation Methods Overview
Income Approach
DCF & Earnings Methods
Market Approach
Comparable Transactions
Asset Approach
Net Asset Value
Why Multiple Valuation Methods?
Using multiple methods provides different perspectives on value, reduces bias, and helps validate the fair price range for better negotiation.
🥇Method 1: Discounted Cash Flow (DCF)
📈 Concept
Values business based on projected future cash flows discounted to present value using appropriate discount rate.
Key Components:
- • Free Cash Flow projections (5-10 years)
- • Terminal value calculation
- • Weighted Average Cost of Capital (WACC)
- • Risk adjustments
🧮 Example Calculation
| Year | FCF ($M) | PV ($M) |
|---|---|---|
| 1 | 12.0 | 10.9 |
| 2 | 14.0 | 11.6 |
| 3 | 16.0 | 12.0 |
| 4 | 18.0 | 12.3 |
| 5 | 20.0 | 12.4 |
| Terminal | - | 85.0 |
| Total | - | 144.2 |
🥈Method 2: EBITDA Multiple
📊 Concept
Multiply normalized EBITDA by industry-appropriate multiple based on comparable company transactions.
Formula:
💰 Industry Multiples
🥉Methods 3-6: Additional Valuation Approaches
📊Method 3: Revenue Multiple
Value based on annual revenue multiplied by industry factor
🏢Method 4: Asset-Based Valuation
Net book value adjusted for market values and intangibles
📈Method 5: Market Comparable
Compare to similar recent transactions in the market
💰Method 6: Liquidation Value
Value if assets were sold individually in orderly liquidation
⚖️Valuation Methods Comparison
Method Comparison Analysis
| Method | Accuracy | Complexity | Market Dependence | Best For |
|---|---|---|---|---|
| DCF | ⭐⭐⭐⭐⭐ | ⭐⭐⭐⭐⭐ | ⭐⭐ | Mature businesses |
| EBITDA Multiple | ⭐⭐⭐⭐ | ⭐⭐⭐ | ⭐⭐⭐⭐ | Most businesses |
| Revenue Multiple | ⭐⭐⭐ | ⭐⭐ | ⭐⭐⭐⭐ | Growth companies |
| Asset-Based | ⭐⭐⭐ | ⭐⭐ | ⭐⭐ | Asset-heavy firms |
| Market Comparable | ⭐⭐⭐⭐ | ⭐⭐⭐ | ⭐⭐⭐⭐⭐ | Active markets |
| Liquidation | ⭐⭐ | ⭐ | ⭐⭐⭐ | Distressed situations |
⚠️Valuation Risk Assessment
📉High Risk Factors
- ⚠️Customer concentration (>30% from one client)
- ⚠️Declining industry or market share
- ⚠️Key person dependency
- ⚠️Regulatory or legal uncertainties
- ⚠️Volatile cash flow patterns
📈Value Enhancement Factors
- ✓Diversified revenue streams
- ✓Strong market position and brand
- ✓Scalable business model
- ✓Professional management team
- ✓Predictable recurring revenue
Need Professional Business Valuation?
Get expert valuation analysis for your acquisition decisions