Business Valuation In Merger

Key Takeaways


Operating Model Assessment


Financial Model Assessment


Competitor Study


Business Valuation via different Methods


Recent Industry Deal Comparison

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Objective of this service

This service program provides you step-by-step coaching on the fundamentals of valuation of business for amalgamation and merger.
How to calculate company valuation? When considering a deal or merger, it is of prime importance to evaluate the target company from different perspectives to determine whether it is being acquired, merged, or being sold at a fair value.
Company Valuation Formula: The process for company valuation consists of an independent valuation of the company valuation companies involved in the merger, by discounting expected cash flows for each firm at the weighted average cost of capital for that firm. Then, the value of the combined business entity (after the merger), is obtained by adding the values obtained for each firm in the first step.
Commonly used valuation methods for mergers and acquisitions are also the P/E ratio and the FCF (Free Cash Flow) to the firm model. Some analysts even use economic value analysis, multiples based on book values (whether price or enterprise value multiples), or the P/Sales ratio.

Challenges while doing an assessment of Business Valuation during mergers

Various techniques are used for the valuation of business for amalgamation and merger, and they also bring with them challenges for successfully implementing them.

  • Stand Alone value method: This calculates the stand-alone benchmark value of a company (before any deal) using a combination of the intrinsic value, relative value, and expectation approaches. This is done through the Discounted Cash Flow and Comparable Company Analysis techniques.
  • Transaction Value: This method values a target company in the context of other deals done in the industry. There are two primary approaches to transaction valuation: Comparable Transaction Multiples Analysis and Premium Paid Analysis.
  • Pro Forma Merger Analysis: This kind of analysis studies the transaction impact on the surviving company and indicates an acquirer’s ability to pay.
  • Accretion/Dilution Analysis: Here, the surviving company is analysed by evaluating its pro forma earnings post-transaction relative to the standalone earnings of the predecessor acquiring company before the deal.
    Contribution Analysis: In this method, the relative contribution of revenues, gross profits, operating profits, and earnings of each company party to the transaction is assessed.
  • Other Methods: include the Leveraged Buyout Analysis (used for more mature companies with strong cash flows), and the Price/Volume relationship, which shows the price range within which a public company has traded over a period. This analysis helps understand the price point at which investors purchased stock in the target company and whether the current trading price reflects any market sentiment supporting the company sale or any other events that could improve shareholder value.

Key Challenges Involved in Valuing Merger and Acquisition Transactions
Common challenges and issues faced in valuing mergers and acquisitions are as follows:

  • Inadequacy of the due diligence process: Conducting a thorough due diligence process is essential for any business valuation for mergers. Sometimes, however, key pieces of information are left out during the due diligence process. Due to time constraints as well, the due diligence is often conducted in a slipshod manner with shortcuts adopted in its processes, adversely impacting all key stakeholders, and the deal itself.
  • Miscalculation and misinterpretation of the financial data of the target: Incorrect application of the company valuation formulas might lead to miscalculation and misinterpretation of complex financial data.
    Misreading the buyer-side competition for the target: This might also lead to dangerous repercussions and lead to a wrong overall business assessment of the deal.
  • Lack of proper evaluation of the quality and skills of the management team: might also have a bearing on the merger valuation process.
  • Developing unbiased assumptions: for projections based on historical trends and expected future occurrences and documenting the rationale behind those assumptions made.
    Proper tracking, reviewing, and analysis of financial documents: including tax returns and various financial statements.
  • Finding robust private-company industry data: to benchmark the subject entity.
    Assimilating the correct market parameters:(both public and private) and documenting the reasoning behind these choices.
  • Creating a compliant business valuation report: by adhering to all relevant guidelines, and applicable industry standards.
  • Factoring in the impact of COVID-19: In this post-pandemic normal, business valuators would have to factor in the situation arising out of the pandemic for key areas like due diligence, business structure, and legal documentation, with lesser emphasis on the target company’s historic financial data.

Why DFX for Business Valuation?

Digital Finance Experts (DFX) is amongst topmost financial business consultants and company valuation experts offering a wide range of industry-ready services & solutions globally, including the valuation of business for amalgamation and merger. The company is backed by proven credentials in all aspects of strategic deal advisory and business valuation services and is ably led by experienced industry-renowned financial and business valuation stalwarts. DFX and its successful sister concerns like YRC and BPX have been strategic, transformational partners for various top-rung clients spread over several years. As your trusted business valuation specialist for mergers, DFX can help you to successfully assess the true financial worth of your target business, providing you with the perfect platform to unlock the true potential of your enterprise. So, if you are an entrepreneur looking out for the best merger and strategic valuation & advisory services, please connect with DFX now to craft your very own success story and stay well ahead of the curve!

Service Inclusion

Market Size 

Business valuation for investment assessment involves detailed online web-based research, to make a quantitative and qualitative assessment of the state and size of the market, industry, and economy, to help identify the unique strategic positioning and competitive advantage of the business. The market size has to be analysed both in terms of volume and value, along with the target customer segments, buying patterns, growth, profitability, cost structure, distributional channels and trends, in the context of the list of competitors. Other key aspects which can be researched on the internet include consumer demographics and profiling (which consists of data on the unique identities and characteristics of individual customers and buyers, i.e., basic information like gender, age, marital status, education, and geographical location) and the economic environment regarding barriers to entry and regulation.

Competitive Advantage Quadrant axis maps are generally competitive positioning maps, providing insights into the target market’s competitive landscape, along with valuable inputs into USPs that can make the business product or service unique from that of the competitors. Businesses use these tools to benchmark themselves against competitors, dissect competitors’ strategies, look for growth opportunities and forecast the market’s future. Various types of quadrant axis maps can be used for competitive benchmarking, i.e. a SWOT (Strength, Weaknesses, Opportunities, and Threats) analysis for competitors, the PEST (i.e. Political, economic, social, and technological factor) analysis for competitive research, Porter’s Five Forces Analysis (Suppliers, Buyers, Entry/Exit Barriers, Substitutes, and Rivalry) to determine an industry’s profitability and attractiveness, analysing competitor’s market positioning through a value proposition canvas (which helps develop products that match customer needs and consists of the customer profile and business value proposition), a perceptual map, a radar chart (where competitor products are compared based on different attributes), and a competitor price analysis.

Apart from the competitors, the other players in the target marketplace are:

  • Customers: both major and minor customers, and current and potential buyers are included here.
  • Suppliers: would include both major and minor ones, who may sell directly to the market or competition. They have to be kept aligned with the company’s market strategy.
  • Complementors: are those who sell non-competing products and which generally boost business sales.
  • Substitutors: are like competitors but their products are not the same. A critical attribute of a substitutor group is that they all seek the same share of the market pie.
  • Regulators: consist of organizations promoting effective market competition. In any industry, regulatory standards are often helpful to ensure product safety, helping suppliers create compatible parts that enable economies of scale, conform to the safety and ecological standards, and lower product prices.
  • Influencers: are groups who have no direct control but who seek to promote their agendas by influencing players in the marketplace. Lobby groups who represent certain business interests may also be involved, although often indirectly.

Financial Analytics and Projections

Market share in competitive analysis is the percentage of total industry sales generated by a particular company. Market share can be estimated by dividing the company’s sales over a specified time by the total industry sales over the same period. This metric is used to give a general idea of the company size in relation to its market and its competitors. The industry market leader is the company with the largest market share. Thus, the specific business or company’s market share is its portion of total sales with regard to the market or industry in which it operates. To calculate the company’s market share, one has to first determine the period for analysis, which can be a fiscal quarter, year, or multiple years.

Sales Volume Analysis: is a detailed study of a company’s sales, in terms of units or revenue, for a specified period. The analysis of sales volume (by sales region or territory, industry, customer type, etc.) is used as a powerful tool in determining the effectiveness of the selling effort.

Margin Growth: To calculate gross margin, one has to subtract the Cost of Goods Sold (COGS) from total revenue and divide that number by total revenue (Gross Margin = (Total Revenue – Cost of Goods Sold)/Total Revenue). The formula to calculate gross margin as a percentage is Gross Margin = (Total Revenue – Cost of Goods Sold)/Total Revenue x 100. With regard to volumes and margin growth, there is generally a trade-off. Positive and ever-increasing operating margins are considered better than lower operating ones. Operating margin is widely considered as one of the key accounting measurements of operational efficiency.

Balance Sheet or BS: is the company’s financial statement and includes assets, liabilities, equity capital, total debt, etc. at a given point in time. The balance sheet includes assets and liabilities on each side. For the balance sheet to reflect the true picture, both heads (liabilities & assets) should match (i.e., Assets = Liabilities + Equity).

Profit & Loss statement or P&L: is a financial statement that summarizes the company revenues, costs, and expenses incurred during a specified period, usually a fiscal quarter or year. The P&L statement is synonymous with the income statement. The P&L statement can also be referred to as a statement of profit and loss, income statement, statement of operations, statement of financial results or income earnings statement, or expense statement.

Cash Flow or CF: is a company’s financial statement that summarizes the amount of cash and cash equivalent entering and exiting a company. The cash flow statement measures how well a company manages its cash position, implying how well the company generates cash to pay its debt obligations and fund its operating expenses.

Return on Capital Employed or ROCE: This is a financial ratio that can be used in assessing the company’s profitability and capital efficiency. Thus, this ratio can help to understand how well a company is generating profits from its capital, as it is employed or put to use. A high and stable ROCE is an indicator of a good company, as it shows that the business is consistently making optimal use of its resources.

Compound Annual Growth Rate or CAGR: is used to calculate the annual growth of the business or investment over a specific period. In other words, CAGR is used to determine the exact percentage of the returns from the investments each year, across the investment tenure.

Earnings Before Interest, Taxes, Depreciation, and Amortization or EBITDA: is a metric used to evaluate a company’s operating performance. It can be seen as a proxy for cash flow. In finance, the term is used to describe the amount of cash (currency) that is generated or consumed by the business in a specified period.

Macro Environmental Factors: The macro-environment is considered to be an external or general environment that is often outside of the retailer’s control and is typical of a larger scale, high-level economic, industry, and overall market scenario. The main macro-environment factors are demographic, economic, natural, socio-cultural, technological, and political-legal. These elements are more complex and are regional, national or global in nature.

Micro Environmental Factors: The micro-environment is essentially an organization or company’s internal, immediate or nearby environment in which it operates. The key micro factors are the customers, suppliers, media, employees, competitors, shareholders, and stakeholders, which could be the government or regulatory bodies. Generally speaking, the micro-environment is less complex and local to the business and every business owner should consider these factors to be affecting the retail business.

SWOT analysis: is a planning tool that helps organizations to build a strategic plan to meet desired goals, improve and streamline operations and keep the company relevant in the market. In a SWOT analysis, organizations identify strengths, weaknesses, opportunities, and threats (the four factors SWOT represents) specific to organizational growth, products and services, business objectives, and overall market competition.

Thus, the key purpose of a SWOT analysis is to identify market-friendly strategies that help create a specific business model that can best align an organization’s resources and capabilities to the environmental requirements in which the business operates. The principles and culture of a SWOT analysis are to build a foundation for evaluating the internal potential and limitations, and the likely opportunities and threats in the external environment. It views all positive and negative factors inside and outside the firm’s culture that can have a bearing on its success. A consistent study of the environment in which the firm operates helps in forecasting/predicting the evolving trends, suitably including them in the company’s decision-making process.

Business Valuation For Investor Assessment 

Discounted cash flow (DCF) approach: is a key business valuation method for investor assessment that is used to estimate the value of an investment based on its expected future cash flows. The DCF analysis tries to estimate the value of an investment as of today, based on future projections of how much money it will generate in the coming period. This applies to investor investment decisions on business entities, such as a company acquisition or an investment in a technology start-up, and also for entrepreneurs and business managers who have to make informed decisions on financial aspects like capital budgeting or operating expenses, with regard to the inauguration of a new factory or purchasing or leasing new equipment. The present value of the expected future cash flows is calculated by using a discount rate to calculate the discounted cash flow (DCF). If the discounted cash flow (DCF) is above the current investment cost, the business opportunity could result in positive returns.

The Net Asset-based approach: identifies the company’s net assets by subtracting liabilities from assets. This business valuation for investor assessment approach focuses on the company’s net asset value (NAV), or the fair market value of its total assets minus its total liabilities, to determine what it would cost to recreate the business. This asset-based valuation approach is less complex and easier to apply, providing an indication of the downside risk, with the value of the underlying tangible assets impacting the overall business valuation. However, it is important to note here that while the assessment of the underlying tangible assets and the liquidity value is a useful tool when deciding on the value of a business, these do not necessarily represent the true value of a going concern.

During a business evaluation, detailed comparison and analysis (including the financials) of the recent listed or private deals, strategic mergers & acquisitions, agreements, co-branding initiatives, tie-ups, and collaborations of the company is essential. Importantly, we have to also assess the efficacy of the evaluated company’s overall strategic planning process, as well as study the company’s overall value creation plan for these deals. The success parameters for all these deals entered into by the company have to be benchmarked with the industry’s measurement norms, taking existing shareholder and stakeholder feedback (on these deals) into consideration. The vision and mission statement, and the skills of the company’s deal advisory and negotiating team also have to be analysed thoroughly to get the correct picture of the entity’s business value ecosystem. Last but not the least, we have to also examine the company’s deal management structure, corporate culture, and the overall talent engagement mechanism for such deals.

Overall Duration

25 – 45 days


On what basis is the valuation done?
Business Valuation for investor assessment is done using multiple techniques like forward calculation technique, market capitalization, earnings multiplier, etc. Depending on the type of business, recent investment deals within the industry, and other relevant factors, DFX experts shall choose the most suitable technique.
Who shall be my advisor?
Your advisor will be chosen from our team of experts. Our internal allocation system also ensures that the advisor assigned to you is ideally suited for the knowledge transfer keeping your business needs at the forefront. In case you are not comfortable with your advisor at any point in time, we will immediately address your concerns. We have a team of highly skilled and experienced experts on board selected through a stringent evaluation process and trained as per international standards.
Does DFX also prepare a "Pitch Deck" along with business valuation to present to the investors?
Pitch Deck can be prepared based upon the business valuation report. If you need help in writing your business pitch deck also, then please refer to our services related to “Pitch Deck” development.
Does DFX also provide drafting / vetting of legal agreement between investor and company?
This is an add-on service. You will have to notify the DFX team for availing this add-on service.
Would you also suggest the tax saving techniques to execute the investment deal?
This is an add-on service. You will have to notify the DFX team for availing this add-on service.
Will this business valuation report be certified by an authorised valuer?
Getting the business valuation report certified is an add-on service. You will have to notify the DFX team for availing this add-on service.
Will DFX help us get connected to investors?
DFX will help you prepare the valuation report. Identifying and approaching potential investors shall be your responsibility. The report can be submitted to investment banking platforms, VC’s, Merger Acquisition firms, etc.
What documents are required for business valuation?
In preparing business valuation reports, data and information pertaining to sales, purchase, income and expenditure, debtors and creditors, assets and liabilities, etc. are required.
Will I get to know the fair division % of ownership/ equity between founders and investors?
This is an add-on service. You will have to notify the DFX team for availing this add-on service.
Will the consulting be conducted online, or will it be classroom-based? What will be the duration?
The entire consulting shall be conducted online keeping in mind the ‘new normal’. The total duration shall be defined in the proposal. In case you want to speed up the process, you can always pre-schedule your dates of consultation with our expert.
This service shall be conducted in which language?
The consulting sessions shall be conducted in English. If you wish to have a translator in the sessions then additional charges shall be applicable, at actual.
Will there be a live one-on-one interaction with the expert or it shall be a pre-recorded video session?
The entire consulting will be a live one-on-one interaction with DFX experts.
Is this a one-on-one (personalised) or a Group Consulting?
This is a personalized one-on-one online consulting, in which you will be interacting ‘LIVE’ with DFX experts.
How can I avail this service?
We have a 3-Step process to get started:
Step 01 – Request for Quote
Step 02 – Service Quote Finalization along with SLA (Service Level Agreement)
Step 03 – DFX Experts start working on your business
How do I make the payment?
You can make the payment online through bank transfer and digital wallets. Our team shall guide you with the payment procedures.
Can I cancel after paying for the service?
Until the initial 01 session or 60 minutes of advisory sessions are completed (whichever is earlier), you can cancel the services at any time. We assure 100% money back into your original payment account within 72 working hours of your cancellation. Please note that few banks may take longer but from our side, it shall be processed and proofs shall be submitted.
Is this relevant to my country, city or location?
Every city/country presents their own set of business scenarios and challenges. Our finance experts shall understand your business constraints and accordingly design solutions specially crafted to suit your business requirements.

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