FREE online courses on Mergers & Acquisitions - Chapter 4 - Basic Applications

 

Valuing a target company is more or less an extension of what we know from capital budgeting. If the Net Present Value of the investment is positive, we add value through a merger and acquisition.

 

A solid estimation of incremental changes to cash flow is critical to the valuation process. Because of the variability of what can happen in the future, it is useful to run cash flow estimates through sensitivity analysis, using different variables to assess "what if" type analysis. Probability distributions are used to assign values to various variables. Simulation analysis can be used to evaluate estimates that are more complicated.