Question on Valuation and Cases to Use

Based on the most helpful WSO content, here’s how you might approach this scenario:

1. Applying Multiples to Both Cases:

   • Yes, you should apply the multiple to both the Seller Case and the Revised Case. This allows you to see the valuation range under both sets of assumptions and provides a comprehensive view of the potential value.

2. Weighting the Cases:

   • It’s important to consider both cases. The Seller Case represents the seller’s perspective and assumptions, which they will likely argue for. The Revised Case reflects Company A’s assumptions and adjustments, which might be more conservative or aggressive based on their analysis.
   • Typically, more weight might be given to the Revised Case if Company A has strong reasons and data to support their assumptions. However, the Seller Case cannot be ignored as it represents the seller’s expectations and market positioning.

3. Seller’s Argument:

   • The seller will likely argue that the Seller Case should be used, as it aligns with their expectations and the model they provided. It’s crucial to understand the rationale behind the seller’s assumptions and be prepared to justify any deviations in the Revised Case.

4. Final Consideration:

   • Ultimately, the decision on which case to put more weight on will depend on the robustness of the assumptions and the negotiation dynamics. Company A should be prepared to defend their Revised Case with solid data and reasoning while being open to discussions around the Seller Case.

By considering both cases and understanding the underlying assumptions, Company A can make a more informed decision and be better prepared for negotiations.

Sources: Flexibility of Valuation Methods in ER?, Multi-Family Acquisitions Excel Test, DCF Analysis Urgent Help, DCF Modeling Course ~ Pre-training text.pdf, DCFs no longer necessary?