Hi, I am valuing a capitalization for a company with a 5-year projected DCF. There are mergers (market consolidation) with competitors that are likely to occur in the future for the company that will increase the profitability of the company significantly. How can I capture such "potential upside scenarios" with a DCF valuation?

I'll give it a shot... If you're assumption is that margins will increase due to future mergers, you could increase EBIT margins in your FCF calculations for both the projected period and the terminal year. However, I'd say there are too many variables to have a defensible valuation. For example, a future acquisition will not only change your margins, but also change your capital structure (so you would need to discount the post-acquisition cash flows by the WACC the proforma NewCo).

How to simulate "future market consolidation opportunities" in a DCF?

UWO838

Baboon

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How to simulate "future market consolidation opportunities" in a DCF?

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