Valuation Methods for an M&A Deal

Valuation Methods for an M&A Deal

October 25, 2023 by investor

Valuation Methods for an M&A Deal

There are several methods for calculating the valuation of a company for an M&A deal.

Here are some key methods to consider:

Multiples of revenue or earnings — each industry segment has a commonly used multiple based on revenue or earnings for valuing the company. 

To calculate, take several recent exits of businesses in the same industry and calculate the multiple.

Comps — this stands for comparables and uses exits from similar companies to calculate the valuation.

To calculate, identify five companies that have the same revenue, growth rate, and monetization model and calculate the exit valuation.

Cost to replace — this calculates what it would cost to replace the business you are selling.

To calculate, and identify the cost of development, marketing, and sales to build a company to the size you have.

Discounted cash flows — this uses the future cash flows from the business and discounting back to today.

To calculate, make a ten-year financial projection of revenues based on the current growth rate and apply a discount rate to set the valuation.

Calculate your valuation using all of these methods to determine which one puts your business in the best light.


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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.