Definition
Entry valuation is the process of determining the current economic value of a target company or asset at the time of investment. It underpins the purchase price and informs the deal structure.
Methods
Several methods are commonly used to determine a company’s value, including:
- Discounted Cash Flow analysis
- Comparable company analysis
- Precedent transaction analysis
- Leveraged Buyout modelling
These valuations are often compared using a “football field” representation, which helps identify outliers and ensure consistency.
Other factors
The methods described above focus primarily on financial metrics and do not capture all relevant considerations. Other factors that must be accounted for include:
- Market conditions and industry trends
- Competitive landscape
- Quality of the management team
- Future growth potential
- Overall risk profile
- Negotiation dynamics
The final entry valuation is often influenced by negotiation between the acquirer and the target’s owners. Various negotiation mechanisms may be used to arrive at a mutually acceptable price.