Valuation Methods Applied to the Target
Chapters in this video
- 0:00 The four valuation lenses and the fixed-order trap
- 1:01 Trading comparables: minority interest, zero control premium
- 2:10 Precedent transactions: control premium versus market timing overlap
- 3:16 DCF intrinsic value, terminal value swing, and sensitivity tables
- 4:03 LBO sponsor maximum price, capital stack seniority, and gross IRR trap
- 5:17 Standalone versus pro forma valuation and the EPS gauntlet
- 6:22 The P/E shortcut trap and when full math is mandatory
- 7:01 Rapid-fire exam recap
What this video covers
- Why trading comparables (trading comps) reflect minority-interest value with no control premium, and why that does not make them the automatic low end of any valuation range
- How precedent transactions may reflect control value quoted against an unaffected pre-announcement price, and why timing and market conditions prevent them from mechanically exceeding trading comps
- What a discounted cash flow (DCF) measures through explicit free cash flow projections plus terminal value, and why terminal value assumptions must be sensitized with no fixed percentage rule
- Why levered free cash flow is the correct cash flow metric for DCF in an acquisition context, and how to move from enterprise value to equity value by subtracting net debt
- How a leveraged buyout (LBO) produces a sponsor-specific maximum price to clear an internal rate of return (IRR) hurdle, and why strategic buyers with synergies can pay above this ceiling
- The capital stack order from revolver and term loan B down through second lien, subordinated notes, mezzanine debt, and sponsor equity, and why target IRR is gross to sponsor equity not net to limited partners
- When the price-to-earnings (P/E) shortcut for accretive versus dilutive analysis fails: any cash, premium, or synergies forces the full four-step pro forma EPS calculation
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