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As I mentioned in my last post, Discounted Cash Flow (DCF) is a valuation method that uses free cash flow projections, a discount rate, and a growth rate to find the present value estimate of a potential investment. Calculate cost of debt, cost of equity, and weighted average cost of capital (WACC).
The specific tools and data required for the analysis is determined by the type of valuation method used in the analysis. I will discuss general tools and credible sources of information that a valuation professional can use for the analysis. Inexpensive Excel-plugin simulator such as @RISK are available for download online.
As a part of the buy-side M&A process, once a buyer selects and decides to pursue an acquisition target, it is essential to reach a level of comfort that the business for sale has a reasonable chance of being successfully acquired. What is Valuation? Valuing a company is not a precise exercise, and best described as an art not a science.
M&A (Merger and Acquisitions): As an investment banking professional, showcasing your experience and knowledge in mergers and acquisitions (M&A) is crucial. Highlight any involvement in M&A transactions, such as due diligence, financial analysis, deal structuring, or client advisory. Let's dive in!
Cost of Leveraged Buyouts: PE firms often use leveraged buyouts (LBOs) to acquire companies, relying heavily on debt financing. Lower interest rates make this debt cheaper, enabling PE firms to execute more buyouts or bid higher for target companies.
The WACC considers the cost of debt and equity financing and reflects the risk associated with the company's capital structure. Adjustments for Negative Cash Flows: Incorporate adjustments in the DCFanalysis to account for the negative cash flows in the initial years.
But you would not build models for M&A deals, leveraged buyouts, or debt/equity issuances in research or at least, they would be far simpler than the IB versions. This view is mostly wrong: The Excel-based work has a ton of overlap, with a few differences here and there.
Reference any deals you’ve worked on that required analysis of these points and talk about how they affected the valuation or client’s decisions (this is more grounded than just saying, “I like high-growth companies!”). Q: Walk me through your resume. Q: Why growth equity? Q: What are your strengths and weaknesses?
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