How can you ensure that your deal closure valuation is defensible?

1 Understand the valuation drivers

The first step is to identify and analyze the key drivers of value for the target company. These may include revenue growth, profitability, cash flow, market share, competitive advantage, customer loyalty, and intellectual property. You should also consider the industry trends, macroeconomic factors, and regulatory environment that may affect the company's performance and outlook. By understanding the valuation drivers, you can assess the strengths and weaknesses of the business, and adjust your valuation assumptions accordingly.

2 Choose the appropriate valuation methods

The next step is to select the most suitable valuation methods for the target company. There are three main types of valuation methods: income-based, market-based, and asset-based. Income-based methods, such as discounted cash flow (DCF) and leveraged buyout (LBO), estimate the value of the company based on its expected future cash flows. Market-based methods, such as comparable company analysis (CCA) and precedent transaction analysis (PTA), compare the company to similar businesses that have been sold or traded in the market. Asset-based methods, such as net asset value (NAV) and liquidation value (LV), calculate the value of the company based on its assets and liabilities. You should use a combination of valuation methods to cross-check and validate your results, and explain the rationale behind your choices.

3 Adjust for synergies and risks

The third step is to adjust your valuation for any potential synergies and risks that may arise from the deal. Synergies are the benefits that result from combining two or more businesses, such as cost savings, revenue enhancement, operational improvement, or strategic alignment. Risks are the uncertainties or challenges that may affect the deal outcome, such as integration issues, cultural clashes, regulatory hurdles, or market volatility. You should quantify and justify the synergies and risks that you expect to realize or face, and incorporate them into your valuation model. You should also perform sensitivity analysis to test how your valuation changes under different scenarios and assumptions.

4 Communicate your valuation clearly

The final step is to communicate your valuation clearly and convincingly to the relevant stakeholders, such as the seller, the lender, the investor, or the regulator. You should prepare a comprehensive and coherent valuation report that summarizes your findings, methods, assumptions, and conclusions. You should also be prepared to defend your valuation in case of any questions, challenges, or disputes. You should highlight the strengths and opportunities of the deal, but also acknowledge the limitations and risks. You should be confident, but also realistic and flexible.

By following these tips, you can ensure that your deal closure valuation is defensible and reflects the true value of the business. You can also increase your chances of closing the deal successfully and creating value for yourself and your stakeholders.