Constructing M&A valuation: how do merger evaluation methods differ as uncertainty and controversy vary?

Journal of Organization Design

Table 5 Table desktop valuation tools

Desktop valuation tool	Characteristics	Challenges
Comparables	This technique assesses a target in comparison to a similar asset. It is a special case of comparative valuation.	It is difficult to find comparable cases.
Historical analysis	This technique evaluates a deal based on similar deals and valuation in the past transactions.	Diverse business environments and deal-specific information can make comparisons impractical. Past comparison deals may be underpaid or overpaid.
Present values	This technique estimates the present value of future cash flows.	Results are sensitive to terminal values and discount rates.
Sum of the parts analysis	This technique evaluates a firm by division, combining diverse valuation techniques.	It can be difficult to compare firms with different basis for diversification.
Leveraged buyout analysis	This technique assumes high leverage in a deal and requires 25~35% of internal rate of return over 3~5 years.	This method is sensitive to the timing of acquisition and resale.