The practice of valuation for M&As and the role of advisors

• Main Author: Figueira, Pedro Marques Jardim Salgado
• Publication Date: 2018
• Format: Master thesis
• Language: eng
• Source: Repositórios Científicos de Acesso Aberto de Portugal (RCAAP)
• Download full: http://hdl.handle.net/10362/37618
• topic: Mergers and acquisitions; Financial advisors; Valuation accuracy; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

This study explores the valuation accuracy of three of the most commonly used models in valuation by financial advisors in a takeover context: the discounted cash flow (DCF), the method of comparable companies and the method of comparable transactions. The motivation for this work is the lack of literature on the topic which motivated an exploratory approach to the issue. The thesis investigates the answer the following research questions: (1) How accurate are the valuation methods? (2) Which valuations method is more reliable? (3) Does the valuation reveals biasness in the valuation taken into consideration the commissioner to whom the financial advisor is reporting to? The hypotheses are tested using a sample of 110 deals that took place in the United States of America and were reported to the Securities Exchange Commission of the same country. The results demonstrate that the expertise advocated by financial advisors is crucial to shrink the range of the valuations. Moreover, the evidence suggests that there seems to be a trade-off between valuation accuracy and range, where DCF method has the largest standard deviation and provides the closest valuation to the acquisition price.