DCF Question -- Should Acquisitions be Included In Capex?

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Rank: Chimp | 6

Hey Guys,

Quick question on the DCF. After I have NOPAT and I add back D&A and changes to NWC, I was wondering if I need to subtract out just mtx. capex or growth capex as well including acquisitions?

The firm that is being valued is very acquisitive and so my thinking is that if I assume its top line growth in the future will be aided by future acquisitions, I can't give the company a "free lunch" by not subtracting out this additional capex... but obviously, you can't assume the acquisitions will continue into perpetuity.


Comments (2)

Jul 12, 2015

I agree. Have done something similar before. Made some simplifying assumptions, but had a switch in a model to turn tuck-ins on and off.

Just make sure you are clear on whether your revenue / EBITDA numbers are in fact "core business" (ex. acq's) or if there is M&A already built in.

If there is a clear M&A pipeline, you can include some within your forecast period, but obviously I'd refrain from doing that closer to the terminal year.

    • 1
Feb 16, 2017