Purpose
Generate a triangulated valuation range for an M&A target — driven by trading comps, precedent transactions, and a simplified DCF — and translate it into a clear valuation bridge and a recommended offer range with a defined ceiling. Replaces back-of-envelope guessing with a structured, IC-ready estimate that survives scrutiny.
When to Use
Invoke this skill when the user asks to:
- Estimate what an acquisition target is worth or build a valuation range
- Price an opening bid or set a walk-away ceiling for a deal
- Build a preliminary valuation for an investment committee or board memo
- Sanity-check a banker's or seller's asking-price valuation
- Compare a target's value across comps, precedents, and DCF
- Translate financial inputs into an enterprise value and equity value estimate
Inputs Required
Before starting, collect:
- Target financials: LTM revenue and EBITDA (and net income if available)
- Growth profile: Historical and forward revenue growth rate (or a 3–5 year forecast)
- Sector: Industry/sub-sector for comparable selection
- Margin profile: EBITDA margin and any expected margin trajectory
- Capital structure: Existing net debt (debt minus cash), or note if all-equity
- Quality flags: Customer concentration, recurring vs. one-time revenue, cyclicality, any add-backs to normalized EBITDA
- Deal context: Strategic vs. financial buyer, control premium expected, expected synergies (if strategic)
If margin trajectory, net debt, or synergies are missing, use sector-reasonable defaults and flag every assumption explicitly in the output.
Instructions
Step 1: Normalize the Financials
Establish the metric base every method runs on.
- Confirm LTM EBITDA and apply any legitimate add-backs (owner comp normalization, one-time legal, non-recurring restructuring) — list each add-back separately; never bundle.
- Flag quality of earnings risk: high customer concentration, declining margins, or heavy one-time revenue should compress multiples — note the downward bias.
- Set the normalized EBITDA and revenue base used in all three methods. State it once, explicitly.
Step 2: Comparable Company Analysis (Trading Comps)
Value the target against how public peers trade today.
- Select a multiple range appropriate to the sector and growth profile. Use these starting EV/EBITDA reference bands and adjust for the specifics:
- Mature/low-growth industrials & services: 6x–9x
- Healthy growth consumer/healthcare: 9x–14x
- High-growth/recurring-revenue software (use EV/Revenue): 4x–10x revenue
- Adjust within the band: above-peer growth and margins push toward the top; concentration, cyclicality, and small scale push toward the bottom.
- Apply a size/illiquidity discount of roughly 10–25% if the target is materially smaller than the public comps it's benchmarked against.
- Output: a low / base / high EV from comps, showing the multiple used at each point.
Step 3: Precedent Transaction Analysis
Value the target against what acquirers actually paid for similar businesses.
- Apply a control premium: precedent transaction multiples typically run 15–30% above trading comps because they include control and synergy value.
- Calibrate the multiple range to the same sector, then layer the control premium on top of the Step 2 bands.
- Distinguish buyer type: strategic buyers paid more (synergies); financial sponsors anchor closer to standalone economics — note which is relevant to this deal.
- Output: a low / base / high EV from precedents, with the implied multiple at each point.
Step 4: Simplified DCF
Value the target on its own forecast cash flows.
- Project unlevered free cash flow for 5 years: start from EBITDA, subtract taxes, capex, and change in working capital. If detail is missing, approximate FCF as EBITDA × (1 − a sector capex/WC drag of 20–40%).
- Set the discount rate (WACC): use a defensible range — 9%–13% for established mid-market businesses, higher for small or volatile targets. State the rate.
- Terminal value: use a perpetuity growth rate of 2%–3% (Gordon Growth) OR an exit EBITDA multiple consistent with Step 2. Show which method.
- Discount to present value and sum to enterprise value. Run a low / base / high using WACC and terminal-value sensitivity.
- Output: a low / base / high EV from DCF, with the WACC and terminal assumptions disclosed.
Step 5: Triangulate the Valuation Range
Synthesize the three methods into a single range.
- Present all three method ranges side by side (low / base / high EV).
- Weight the methods based on context: data-rich, stable businesses lean DCF + comps; deal-heavy sectors lean precedents. State the weighting logic.
- Derive a blended valuation range (low to high EV) and identify a central base-case EV.
Step 6: Build the Valuation Bridge
Walk from enterprise value to recommended offer.
- EV → Equity Value: subtract net debt (add net cash).
- Layer deal adjustments: control premium (if not already in EV), expected synergies (strategic buyers only — value them conservatively and separately), and any quality-of-earnings discount.
- Present as a stepped bridge: Standalone EV → +/− adjustments → Implied Equity Value range.
Step 7: Recommended Offer Range
Give a decision, not a spreadsheet.
- Opening bid: where to start (typically near the blended low/base).
- Target close: the realistic landing zone.
- Walk-away ceiling: the maximum justifiable price and why crossing it destroys value.
- State the implied EV/EBITDA multiple at each point so the buyer can pressure-test against the market.
Output Format
- Structure: Seven sections in sequence; method ranges and the final offer presented in tables; bridge as a stepped list
- Length: 900–1,300 words
- Format: Structured document with at least two tables (three-method comparison; valuation bridge) and a final recommendation block
- Sections: Normalized financials → Comparable company analysis → Precedent transactions → Simplified DCF → Triangulated range → Valuation bridge → Recommended offer range
- Tone: Corporate development / deal-team — quantitative, assumption-transparent, decisive; every number traceable to a stated input
Quality Checklist
Before delivering output, verify:
- [ ] All three methods produce an explicit low / base / high EV (nine data points minimum)
- [ ] Every multiple, WACC, control premium, and terminal assumption is stated — no unsourced number
- [ ] EBITDA add-backs are itemized individually, not bundled
- [ ] The bridge clearly walks EV → equity value (net debt and synergies shown as discrete steps)
- [ ] The recommended offer range includes an opening bid, target close, AND a walk-away ceiling
- [ ] Implied EV/EBITDA multiples are shown at the offer points so they can be benchmarked
Notes
- This is a preliminary/IC-level estimate, not a fairness opinion — flag that real diligence (QoE, working capital normalization, debt-like items) can move the range materially.
- The most common error is double-counting synergies: keep standalone value and synergy value strictly separate, and value synergies conservatively.
- When the three methods diverge sharply, that divergence is itself the finding — investigate why (e.g., comps say cheap but DCF says expensive often signals a growth or margin assumption that won't hold).
- For financial-sponsor buyers, anchor toward standalone economics and the DCF; for strategics, precedents and synergy value carry more weight.
How to use this skill
This file is a Claude Code skill in Anthropic's standard format — markdown with YAML frontmatter at the top.
Installing in Claude Code:
~/.claude/skills/<folder-name>/SKILL.md— auto-loads in every session anywhere on your machine (recommended for skills you'll use across multiple projects)<your-project>/.claude/skills/<folder-name>/SKILL.md— auto-loads only when working in that project (recommended for project-specific skills)
Restart Claude Code or open a new session to register.
Using in Claude.ai, ChatGPT, Gemini, or other AI tools:
- Drag this file into a new chat, or copy and paste its contents
- Send your task or request as your next message — the AI will apply the skill where it fits
For Claude Code skill details: https://docs.anthropic.com/en/docs/claude-code/skills