Hello peeps,
When we value a target company using free cash flow analysis in the M&A transaction, does valye of the cash flow estimation happen after the M&A or before M&A deal, given than the WACC will be adjusted to reflect any changes in the target’s risk or capital structure that may result from the merger .
Thanks.
In practice, you can run the DCF for both the standalone and pro forma financials and include both in the football field to show a valuation range. Running both shows the “intrinsic” value of the Target and what it’s worth to you (and how those two may vary). This matters most for a strategic investor where you expect to capture synergies but it can make sense for financial investors as well (i.e. private equity).