Editing Mergers and acquisitions (section)

==Business valuation==
{{further|Business valuation|Valuation (finance)#Business valuation|Investment banking#Corporate finance|Corporate finance#Investment and project valuation}}
The assets of a business are pledged to two categories of stakeholders: equity owners and owners of the business' outstanding debt. The core value of a business, which accrues to both categories of stakeholders, is called the [[enterprise value|Enterprise Value]] (EV), whereas the value which accrues just to shareholders is the [[Equity (finance)#Valuation|Equity Value]] (also called [[market capitalization]] for publicly listed companies). Enterprise Value reflects a [[Corporate finance#Capitalization structure|capital structure neutral]] valuation and is frequently a preferred way to compare value as it is not affected by a company's, or management's, strategic decision to fund the business either through debt, equity, or a portion of both.<ref>{{Cite web|url=https://www.smergers.com/how-to-value-a-business|title=How to Value a Business - SMERGERS|website=SMERGERS|language=en}}</ref> Five common ways to "triangulate" the enterprise value of a business are:
#[[asset valuation]]: the price paid is the value of the "easily salable parts"; the main approaches to valuing these are [[book value]] and [[liquidation value]]
#historical earnings valuation: the price is such that the payment for the business (or return targeted by the investor), would have been supported by the business's ''own'' earnings or cash-flow averaged over the previous 3–5 years; see also [[Earnout]]
#future maintainable earnings valuation: similarly, but forward looking; see generally, [[Cash flow forecasting]] and [[Financial forecast]], and re "maintainability", {{slink|Sustainable growth rate#From a financial perspective}} and [[Owner earnings]]. 
#[[relative valuation]]: the price paid per dollar of earnings or revenue is based on the same multiple for [[Valuation using multiples#Peer group|comparable companies]] and / or recent [[comparable transactions]]
#[[discounted cash flow|discounted cash flow valuation]] (DCF): the price equates to the value of "all"<ref>W. Brotherson, K. Eades, R. Harris, R. Higgins (2014). [https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2681112 Company Valuation in Mergers and Acquisitions: How is Discounted Cash Flow Applied by Leading Practitioners?], ''Journal of Applied Finance'', Vol. 24;2.</ref> future cash-flows -  with synergies and tax given special attention  - [[present value|as discounted]] to today; see [[Valuation using discounted cash flows#Determine cash flow for each forecast period|§ Determine cash flow for each forecast period]] under [[Valuation using discounted cash flows]], which compares M&A DCF models to other cases.

Professionals who value businesses generally do not use just one method, but a combination. Valuations implied using these methodologies can prove different to a company's current trading valuation. For public companies, the market based enterprise value and equity value can be calculated by referring to the company's share price and components on its balance sheet. The valuation methods described above represent ways to determine value of a company independently from how the market currently, or historically, has determined value based on the price of its outstanding securities.

Most often value is expressed in a [[Fairness opinion|Letter of Opinion of Value]]  (LOV) when the business is being valued informally. Formal valuation reports generally get more detailed and expensive as the size of a company increases, but this is not always the case as the nature of the business and the industry it is operating in can influence the complexity of the valuation task.

Objectively evaluating the historical and prospective performance of a business is a challenge faced by many. Generally, parties rely on independent third parties to conduct due diligence studies or business assessments. To yield the most value from a business assessment, objectives should be clearly defined and the right resources should be chosen to conduct the assessment in the available timeframe.

As [[corporate synergy|synergy]] plays a large role in the valuation of acquisitions, it is paramount to get the value of synergies right, as briefly alluded to regarding DCF valuations. Synergies are different from the "sales price" valuation of the firm, as they will accrue to the buyer. Hence, the analysis should be done from the acquiring firm's point of view. Synergy-creating investments are initiated by the choice of the acquirer, and therefore they are not obligatory, making them essentially [[real options]]. To include this [[real options valuation|real options aspect]] into the analysis of acquisition targets is an issue that has been studied lately.<ref>{{cite journal|last=Collan|first=Mikael|author2=Kinnunen Jani|title=A Procedure for the Rapid Pre-acquisition Screening of Target Companies Using the Pay-off Method for Real Option Valuation|journal=Journal of Real Options and Strategy|year=2011|volume=4|issue=1|pages=117–141|doi=10.12949/realopn.4.117|doi-access=free}}</ref> See also [[contingent value rights]].

Valuation can be influenced by a range of factors beyond financial performance, including cross-border and cross-industry considerations, [[corporate sustainability|sustainability]] initiatives, and regulatory environments. Cross-border transactions may involve [[foreign exchange risk|exchange rate risks]], differing [[accounting standards]], and [[geopolitical risk|geopolitical factors]], which can lead to valuation adjustments.<ref>{{cite book |last1=Eiteman |first1=David K. |last2=Stonehill |first2=Arthur I. |last3=Moffett |first3=Michael H. |title=Multinational Business Finance |edition=15th |publisher=Pearson Education |year=2020 }}</ref> Cross-industry acquisitions can introduce complexities in synergies and market positioning, as firms may face integration challenges and differences in business models.<ref>{{cite journal |last1=Ficery |first1=Kristian |last2=Herd |first2=Todd |last3=Jones |first3=Timothy |title=Where Has All the Synergy Gone? The M&A Puzzle |journal=Journal of Business Strategy |year=2007 |volume=28 |issue=5 |pages=29–35 |doi=10.1108/02756660710820802 }}</ref> Additionally, sustainability-related factors, such as a company's [[environmental, social, and governance]] performance, can impact valuation by influencing [[investor sentiment]], access to capital, and long-term risk exposure.<ref>{{cite book |last=Susen |first=Malte |year=2024 |title=ESG as a Strategic Capability: An Exploration of Corporate Valuation, Employee Satisfaction, and Mergers & Acquisitions |publisher=King's College London |url=https://kclpure.kcl.ac.uk/portal/en/studentTheses/esg-as-a-strategic-capability }}</ref>