Valuations, people in M&A

The CFA curriculum gives a number of valuation methods but I’m wondering what the large investment banks actually do in practical terms when they’re carrying out their valuations.

For example a large listed company gets acquired…can somebody give me a dumbed down version of how an IB would go about arriving at their ‘premium per share’ / target valuation.

I mean realistically how many models and methods does somebody like Goldman Sachs use for a large listed company.

Any M&A’ers got any insights here?

They come up with a value they like and use whatever valuation methodology gets them to that value.


DCF and industry transaction multiples. If you’re the buyer, you will be using the most conservative set of assumptions, and the seller will use the most optimistic viewpoint.

I suspected as much lol any more insights would be useful, how long does it normally take to come up with a valuation figure and refine it.

Pay whatever it takes and just say “We will achieve $xxx in SYNERGIES over 5 years”

ok so you arrive at your valuation figure do you then present the management of who you’re acting for a pack of how you arrived at your valuation with figures, methodology and a ‘by the way we’ll take x% of the deal price’???

trying to get some insights into the process…

What would you say to somebody that argues M&A a lot of paperwork, which comes all of a sudden, its done by overqualified people, your boss then takes the biggest cut while you stay up all night and to arrive at a valuation metric you work backwards from your answer??

I work in corporate development. We’ll decide on a range of value with which we’re comfortable and use any and all methods to support that valuation.

My comments are somewhat similar to ‘BValGuy’ but I’ll further elaborate. I’ll answer part of your question, but to get the other half of your answer I’d suggest that you pull up some transaction analysis presentation decks / fairness opinions.

On the sell side advisory mandates, usually there are more optimistic assumptions / forecasts and thus the valuations put forth reflect these assumptions. The DCF / precedent transaction models suggested above are the most common ones used but there are others (depending on the situation, industry etc.).

On the buy side, the sell side models / assumptions get stress tested, along with running indepedent financial models that have more realistic / conservative set of assumptions. DCF models are usually the most common by corporate acquirers.

There is value and price - so when valuing a business there is intrinsic value and then there is special interest purchaser price range (which includes synergies).

On the fairness opinion side, the ‘premium per share’ for example gets evaluated relative to say ‘Avg premium in US / Canada etc’, ‘Avg premium in Industry’, ‘Avg premium for structure of offer’ etc.