Valuation Approach and Discounted Cash Flows in Acquisitions

The valuation approach prioritizes discounted cash flows (DCF), focusing on after-tax figures with a long-term perspective, avoiding terminal value calculations or short-term assumptions. Hurdle rates set by the board align with the size of the business, varying accordingly. A First Chicago method is employed, creating four independent scenarios—winner, modest win, walking wounded, and wipeout—which are probability-weighted to establish a weighted average or expected value. Utilizing extensive acquisition data, the approach incorporates base rates to compare potential acquisitions against historical performance metrics, enabling assessments of proposed businesses' potential against prior successes. This method reflects a commitment to meticulous modeling and assessment, leveraging organizational scale for comparative analysis and strategic adjustments when necessary.