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Thus far, we have covered four popular valuation methods in M&A (DCF, Comparable Company, Precedent Transaction, and LBO) and one less known one that is making its way out of the academic realm into the business world (Dividend Discount Method, DDM).
Cash Flow from Operations in Valuation Models Valuation models such as the Discounted Cash Flow (DCF) model use CFO as a key input. For example, Alphabet's (Google's parent company) consistently strong CFO has been a positive indicator in DCF models and has contributed to its high valuation.
Notable Examples Several high-profile vertical mergers have reshaped industries, such as the acquisition of Pixar by Disney , integrating content creation with distribution channels, and Amazon’s purchase of Whole Foods , linking retail distribution with a leading online platform.
Growth equity firms could invest in any industry but tend to be skewed toward technology and TMT , with some exposure to consumer/retail , healthcare , and financial services. Financial Modeling: Like private equity, 3-statement models are common, as are valuations and DCF models , but LBO models are less common since not all deals use debt.
The skill set in PF/Infra is more specialized because modeling Power Purchase Agreements (PPAs) for a solar plant doesn’t translate that well into valuing a consumer/retail company. Outside of LBOs, this Exit Value or Terminal Value concept is widely used in other corporate finance analyses, such as the DCF model.
You’ll also have to spend time learning/reviewing the technical questions, as the day-to-day work in ECM and DCM is far removed from subjects like Equity Value vs. Enterprise Value or a DCF model. You also pitch prospective clients on deals and spend time learning your industry. Should You Accept a Capital Markets Internship or Job Offer?
You can think of a search fund as a private equity firm meets a SPAC , minus the celebrity sponsor who’s there to swindle retail investors. For example, you could take one of the companies you found in the screening process and build a simple 3-statement model and DCF model for it.
Pharmacies are closer to retail companies; nursing facilities are like REITs or real estate; small physicians’ practices are like consulting firms; and HCIT companies could be more like software or IT services firms. Interview Guide : There’s a DCF case study based on Attendo AB, a healthcare facility company in Sweden.
Valuation , such as the different multiples used for mining companies and the NAV model in place of the DCF (see below). To value it, we build a standard DCF based on production volumes, CapEx to drive capacity, and assumed steel prices: The valuation multiples are also standard (TEV / Revenue, TEV / EBITDA, and P / E).
They trade based on catalysts like clinical trial results, drug launches, and early sales indications, so theyre much less sensitive to macro factors than consumer/retail or industrial stocks. Stick to straightforward companies with 1 2 main products and aim for simple DCF models that take no more than ~100 rows in Excel.
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