You're facing conflicting valuation opinions in a merger negotiation. How can you make informed decisions?

My suggestions are as follows: -Gather Comprehensive Information: Use multiple valuation methods and perform detailed financial analyses. -Understand Valuation Basis: Scrutinize assumptions and data sources for each valuation. -Engage Independent Experts: Obtain unbiased valuations from third-party experts and industry specialists. -Scenario and Sensitivity Analysis: Analyze different scenarios and sensitivities to key assumptions. -Engage Stakeholders: Involve internal stakeholders and maintain transparent communication.

Multiple Valuation Approaches: Utilize various valuation methods such as Discounted Cash Flow (DCF), Comparable Company Analysis, and Precedent Transactions to get a comprehensive view. Cross-Verification: Cross-check valuations derived from different methods to identify discrepancies and validate the consistency of results. Scenario Analysis: Conduct scenario analysis to see how different assumptions affect valuations, helping to understand the range of potential outcomes.

Verify Assumptions: Scrutinize the assumptions underlying each valuation model, such as growth rates, discount rates, and market conditions. Sensitivity Analysis: Perform sensitivity analysis to determine how changes in key assumptions impact the valuation, providing insight into the robustness of the valuations. Historical Data: Compare assumptions against historical data to assess their reasonableness and reliability.

Usually, valuation is most sensitive to changes in the WACC relative to all other assumptions. Therefore, focus on how WACC is calculated - review the comparable companies used for estimating beta; use 3-year averages for all inputs so that anomalous years don’t skew results; and check that terminal value is within 60-70% of total value.

Identify Risks: Identify potential risks associated with the merger, including market volatility, regulatory changes, and operational challenges. Quantify Impact: Quantify the financial impact of identified risks on the valuations to better understand the downside scenarios. Risk Mitigation: Develop strategies to mitigate identified risks, which can help in negotiations and decision-making.

Seek External Opinions: Consult with industry experts, financial analysts, and valuation specialists to gain independent perspectives. Internal Expertise: Leverage the expertise of your internal finance team to provide additional insights and validate external valuations. Due Diligence: Conduct thorough due diligence to gather comprehensive information and ensure all aspects of the valuation are considered.

In any merger related valuation disputes, negotiations should aim to identify who is insisting on a minimum threshold and who is limiting the maximum threshold. In order to convince the party who is insisting on minimum one needs to show the likely deterioration in the value if such merger fails ie highlight the share of synergy premium that is inherent in the value offered. At the same time one needs to show the other side that it cannot insist that the entire synergy premium is reserved for one party alone and a fair share of synergy premium needs to be added to the value of every component.

Prepare Arguments: Develop strong, data-backed arguments to support your valuation position in negotiations. Find Common Ground: Identify areas of agreement and build on them to facilitate compromise and mutual understanding. Flexibility: Be willing to adjust your stance based on new information or reasonable counterarguments, aiming for a fair and mutually beneficial outcome.

if there is disparity between valuations, but strategically the deal makes sense, start financially engineering the deal more creatively. if the sellers expectation is higher than the buyer by a significant amount, offer the seller that amount or even more but over time. present value of money is higher now compared to five years out. earn outs, earn-ins, derivatives and other tools can boost future value but on a pv basis it still works. both art and science.

Steve - I think you have to find a bucket of money (today- challenge #1) And the hope for a bucket(#2- the futures) Number #1 is mirky today but Number #2 is baked in clouds due to the constant social change pushed on the corporate world of today

Check recent M&A transactions to ensure industry specific weightings have been adhered to. Secondly crosscheck the basis of all assumptions used .