How is my company’s valuation calculated?
Tempo de leitura
8 minutes
Calculating a company’s valuation in M&A involves three main methods: Discounted Cash Flow (DCF), which projects future cash flows and brings them to present value; multiples of comparable publicly listed companies; and multiples from recent comparable transactions in the market. In practice, the three methods are used together — and knowing how to navigate each one can make a difference in the final number.
The starting point is understanding that the market does not price the past. It does not matter how much you invested, how many years you dedicated, or the value of the company’s fixed assets. What a buyer pays for is the cash flow it expects to generate from the acquisition. This gap between what the founder values and what the market pays is the central tension in any valuation negotiation.
The good news: within each method, there is room to maneuver. Understanding how each one works — and how to argue within it — is what separates an average valuation from an exceptional valuation.
The DCF projects all the cash flow the company is expected to generate over time and, by applying a discount rate, brings that expected value to the present. The higher the projected cash flow and the lower the perceived risk, the higher the valuation. The discount rate captures the risk of the business — if the buyer sees uncertainty, it applies a higher discount.
To negotiate well within the DCF method, the entrepreneur needs two things. First, a robust and detailed business plan, with explicit value levers: which initiatives will generate growth, within what timeframe, and at what cost. Second, financial projections that are optimistic — but realistic. Unrealistic projections are immediately dismissed; well-supported projections anchor the conversation at a different level.
In this method, a metric is selected — EBITDA, net revenue, net income — and the multiple at which comparable publicly listed companies trade in the market is applied. If companies in the sector trade at 8x EBITDA, that number becomes an anchor for the conversation. The work is to choose the right comparables and argue why your company deserves a premium over the median.
The strategies here are clear. First, highlight the concrete and intangible differentiators of the business: brand strength, strategic location, proprietary technologies, exclusive distribution channels, quality of the team. Second, show that the company is on a growth trajectory — which justifies paying a multiple above the median, since the buyer is buying what comes next, not what was left behind.
Here, the benchmark is not publicly listed companies, but recent M&A transactions in the same sector or in adjacent sectors. Closed deals have one crucial data point that public companies do not: the control premium — the additional value a buyer paid to own the entire business, not just a stake traded in the market.
One fundamental point in this method: synergy matters. If a specific buyer sees strategic value in your company — access to a market, a technology, a customer base — it will pay more than the transaction median indicates. Identifying these buyers and putting them in competition with one another is where valuation truly moves. Those who know the recent transactions in the sector and understand which buyers have the most to gain from the acquisition can extract that premium.
The three methods are based on different logics. In practice, experienced advisors use all three together — and choose which one to emphasize depending on the company’s profile and the buyer.
Discounted Cash Flow, or DCF, looks at the company’s future cash generation capacity. It projects expected cash flows and brings that value to the present through a discount rate. In this method, the entrepreneur’s room for action lies in building a robust business plan, presenting realistic projections and reducing the buyer’s perception of risk.
The trading comparables method follows another logic: observing how similar publicly listed companies are valued by the market. Based on that reference, a multiple is applied to a company metric, such as EBITDA, net revenue or net income. Here, the entrepreneur gains strength when they can demonstrate concrete and intangible differentiators — brand, technology, distribution channels, quality of the team and a growth trajectory above the sector median.
The precedent transactions method uses the price paid in recent deals in the same sector or in adjacent sectors as a benchmark. This method is especially relevant because closed transactions capture the control premium — the additional value a buyer is willing to pay to acquire the entire business. In this case, the main opportunity lies in identifying buyers with specific synergy, meaning those for whom the acquisition generates greater strategic value than it does for the average market participant.
The three methods provide the map. But the terrain is more complex. The quality of preparation — having organized data, well-supported projections and documented business differentiators — is what allows the seller to argue within each method with credibility. A well-prepared company enters the negotiation in a different position from one that arrives improvised.
Earn-out and payment structure also affect the final value received, although they are a separate topic. And the indicative valuation first appears in the non-binding offer (NBO) — before any due diligence. This means the NBO number already reflects the buyer’s perception of the business, shaped by the way the company was presented.
The difference between an average valuation and an exceptional valuation is rarely in the method. It is in who is sitting on the other side of the table. A strategic buyer with specific synergy will pay more than the median — because for that buyer, the value is higher. The work is to find that buyer.
igc partners has deep sector expertise and maps buyers globally. Over the past year, we brought 12 new international buyers to Brazil.
Our mandate is exclusively on the seller’s side. We do not represent buyers — we never have. This ensures that the process is built to maximize the value perceived by the right buyer, without conflicts of interest. This is what we call a transaction without conflicts of interest: an owner-to-owner process, with partners leading from beginning to end.
The three methods are usually used together. DCF is more prominent when the company has predictable cash flow and a well-built business plan. Trading comparables become more relevant when there are publicly listed companies in the same sector. Precedent transactions are especially relevant when there are recent deals as a direct reference — and when there are buyers with specific synergy at the table.
Because the criteria are different. The founder tends to price the history, the effort and the assets built over time. The buyer prices the cash flow it expects to generate from the acquisition. This difference is structural — and the advisor’s role is to build the argument that brings the two sides closer, using the right methods with the right data.
EBITDA is one of the most commonly used metrics as a basis for multiples — but it is not the only path. Depending on the company’s profile, net revenue, net income or other metrics may be more representative. In addition, adjusted EBITDA — which considers non-recurring expenses — is often the most relevant number in the negotiation, and understanding which adjustments are defensible can make a difference in the outcome.
Directly. A company that enters the negotiation with organized data, well-supported projections and documented business differentiators can argue within each method with greater credibility. Buyers form their perception of value in the first interactions — and a well-prepared presentation anchors the indicative valuation at a higher level before any formal offer.
Yes — and they often do. International buyers have shown growing interest in Brazilian companies across several sectors, and many see synergies that local buyers do not. When that synergy exists, perceived value increases. Identifying these buyers and bringing them into the process is part of the work of an advisor with global mapping capabilities.
By Murilo Oliveira — Partner, igc partners
