Question: how is valuation done in Mergers and Acquisitions? 

Answer: Valuation is done using 3 primary methods:\n\n1. Discounted Cash Flows:  The DCF method projects the future expected cash the business is expected to generate and converts those future cash flows to the present value (because cash in the future is worth less than cash in the present).  The DCF valuation in theory should represent the intrinsic value of the company.  In practice it is not always the case.\n\n2. Comparable Company Analysis: The compco looks at the price that other companies in in the industry are trading at and determines the appropriate multiple that the industry should value the target company. (P/E, EV/EBITDA) Once the appropriate multiple has been identified the targets EBITDA or Net Income are multiplied by the multiple to get the implied valuation.\n\n3. Comparable Acquisition Analysis.  The compacq looks at the price that similar acquirers paid in similar transactions to identify the proper implied trading multiple.  The multiple is then used the same as a compco multiple for valuation.\n\nThe place where the above three valuation overlap should be the valuation for the deal.  However, in real life the actual value is the price at which the buyer is willing to buy and the seller is willing to sell, regardless of what the analysis says should be the "right" price.
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