Purpose
Produce a defensible valuation range for an acquisition target by triangulating DCF, comparable company, and precedent transaction analyses — then translate the range into implied multiples, an EPS accretion/dilution verdict, and a sensitivity map that shows exactly which assumptions move the answer. Replaces the scramble of building three models from scratch under deal deadline pressure.
When to Use
Invoke this skill when the user asks to:
- Value an acquisition target or estimate a fair purchase price
- Pressure-test a proposed offer or bid before submitting it
- Prepare a valuation section for a board deck or investment committee memo
- Determine whether a deal is accretive or dilutive to EPS
- Compare an offer against trading comps and recent M&A transactions
- Understand which assumptions the valuation is most sensitive to
Inputs Required
Before starting, collect:
- Target financials: Revenue, EBITDA, EBIT, net income, D&A, capex, and working capital for the last actual year plus any available projections (3–5 years preferred)
- Deal structure: Proposed purchase price or offer range, cash/stock mix, and assumption of net debt
- Acquirer profile: Acquirer's share price, shares outstanding, cost of debt, and marginal tax rate (needed for accretion/dilution)
- Comparable set: Names of public comparables and recent precedent transactions if known — otherwise the industry/sector so a representative set can be inferred
- Synergy estimate: Expected annual run-rate synergies (cost and/or revenue) and time to full capture
- WACC inputs or estimate: Discount rate, or the components (risk-free rate, beta, equity risk premium, cost of debt) to build one
- Terminal assumptions: Long-term growth rate and/or terminal EBITDA exit multiple
If projections, WACC components, or a comparable set are missing, build reasonable defaults from the sector, state each assumption explicitly, and mark them for the user to confirm.
Instructions
Step 1: Normalize the Target's Financials
Before valuing, clean the base.
- Adjust EBITDA for one-time items, owner compensation add-backs, non-recurring costs, and any pro-forma standalone adjustments
- Reconcile enterprise-to-equity bridge components: net debt, minority interest, preferred, and unfunded pension
- State the base-year metrics that all three methods will reference (Revenue, adjusted EBITDA, EBIT, unlevered FCF)
- Flag any figure that is estimated rather than provided
Step 2: Discounted Cash Flow (DCF)
Build an intrinsic value from projected cash flows.
- Project unlevered free cash flow for the explicit forecast horizon (default 5 years): EBIT × (1 − tax) + D&A − capex − Δ net working capital
- Discount each year at WACC; state the WACC and how it was derived
- Compute terminal value using both methods and reconcile: Gordon Growth (perpetuity) and Exit Multiple (terminal-year EBITDA × exit multiple)
- Sum discounted FCF + discounted terminal value = enterprise value; bridge to equity value
- Note the terminal value as a % of total EV (flag if above ~75% — signals fragile assumptions)
Step 3: Comparable Company Analysis (Trading Comps)
Anchor to how the public market prices similar businesses.
- Select 5–8 comparables matched on sector, size, growth, and margin profile; state the selection rationale
- Apply the relevant multiple set: EV/Revenue, EV/EBITDA, and P/E where appropriate
- Present the range as low / median / high multiples across the set
- Apply median and 75th-percentile multiples to the target's metrics to derive an implied EV and equity value range
- Note whether the target should trade at a premium or discount to the median (based on growth/margin) and adjust
Step 4: Precedent Transaction Analysis
Anchor to what acquirers have actually paid.
- Select 4–6 relevant M&A transactions in the sector from a comparable timeframe; state each rationale
- Use transaction EV/EBITDA and EV/Revenue multiples (these embed control premiums)
- Note the implied control premium vs. trading comps (typically 20–40%)
- Apply the precedent multiple range to the target to derive an implied valuation range
- Caution where market conditions at the time of a precedent differ materially from today
Step 5: Triangulate the Valuation Range
Reconcile the three methods.
- Present a football-field summary: the value range from each method side by side
- Identify the overlap zone and state a recommended valuation range (low–high)
- Weight the methods explicitly and justify (e.g., precedents weighted higher for control situations, DCF higher when comps are thin)
- Compare the recommended range against the proposed offer price and state whether the offer is below, within, or above fair value
Step 6: Implied Multiples Check
Translate the recommended price back into multiples.
- Show implied EV/Revenue, EV/EBITDA, and P/E at the offer price
- Benchmark these against the trading comps median and the precedent transaction median
- State whether the implied multiples are defensible or stretched
Step 7: Accretion/Dilution Analysis
Determine the EPS impact to the acquirer.
- Compute pro-forma net income: target net income + after-tax synergies − incremental interest on acquisition debt − foregone interest on cash used
- Compute pro-forma share count: acquirer shares + new shares issued (for any stock consideration)
- Pro-forma EPS = pro-forma net income ÷ pro-forma shares; compare to acquirer standalone EPS
- State the verdict: accretive or dilutive, by what % and in what year
- Identify the breakeven synergy level required to reach EPS neutrality
Step 8: Sensitivity Analysis
Show what actually moves the answer.
- Build a WACC × terminal growth sensitivity grid on DCF equity value (at least 3×3)
- Build a synergy capture × purchase price grid on Year-1/Year-2 accretion/dilution
- Identify the two or three assumptions with the largest swing in outcome
- State the "break points" — the assumption level at which the deal flips from accretive to dilutive or moves outside the fair-value range
Output Format
- Structure: Sequential valuation sections, each with the method's inputs, calculation logic, and resulting range; football-field triangulation; accretion/dilution table; sensitivity grids
- Length: 1,100–1,500 words
- Format: Structured document mixing concise prose with tables for multiples, the football field, accretion/dilution, and sensitivity grids
- Sections: Normalized financials → DCF → Comparable companies → Precedent transactions → Triangulated range → Implied multiples check → Accretion/dilution → Sensitivity analysis → Key risks and recommendation
- Tone: Corporate development director — precise, numerate, assumption-transparent; states a view rather than hedging, and always separates fact from estimate
Quality Checklist
Before delivering output, verify:
- [ ] All three valuation methods are completed with a stated numeric range for each
- [ ] Every material assumption (WACC, growth, exit multiple, synergies) is stated explicitly and any inferred values are flagged
- [ ] DCF terminal value is computed via both perpetuity and exit-multiple methods and reconciled
- [ ] Comparable and precedent sets each cite the specific names or a stated rationale — not a generic "industry average"
- [ ] Accretion/dilution states a clear verdict, the % impact, the year, and the breakeven synergy level
- [ ] Sensitivity analysis identifies the specific break points where the deal flips accretive/dilutive or exits the fair-value range
Notes
- Terminal value dominating DCF (>75% of EV) is the most common source of a false-confident valuation — surface it every time
- Precedent transactions embed control premiums; trading comps do not — never blend the two ranges without accounting for this
- The most decision-relevant output is usually the sensitivity grid, not the point estimate; a valuation "range" that ignores which assumptions drive it gives boards false precision
- If synergy estimates are provided by the deal team, present the analysis both with and without synergies — deals that only work on synergies carry the most execution risk
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