The analytical process of determining the economic value of a company, using financial metrics, comparable transactions, and qualitative factors to establish a price range for M&A purposes.
Every business owner who has considered selling their company has asked themselves the same question: what is it worth? The answer is rarely a single number. Business valuation in the context of M&A is a structured process that combines quantitative analysis with qualitative judgement to arrive at a price range that both buyer and seller can negotiate around.
Business valuation is the process of estimating the economic value of a company for the purposes of a transaction, dispute, tax event, or strategic decision. In M&A, its primary function is to provide a basis for price negotiation between buyer and seller.
The important word is “estimate.” Unlike a property that can be valued by comparable sales per square metre, a business is a living entity whose value depends on future performance — and the future is inherently uncertain. This is why valuations are expressed as ranges rather than exact figures, and why two competent professionals can arrive at different conclusions using the same data.
In the Spanish mid-market, business valuation typically involves a combination of methods, cross-referenced against each other to build conviction in the result.
EBITDA multiples (comparable transactions). The most commonly used method in the mid-market. A multiple is applied to the company’s normalised EBITDA based on what comparable companies have traded for in recent transactions. For instance, if similar businesses in the sector have sold at 6-7x EBITDA and the target has a normalised EBITDA of 3 million, the implied enterprise value is 18-21 million euros. The challenge lies in finding genuinely comparable transactions and in determining the “correct” EBITDA.
Discounted Cash Flow (DCF). Projects the company’s future free cash flows over a period (typically 5-10 years) and discounts them to present value using a discount rate that reflects the risk of the business. Theoretically the most rigorous method, but highly sensitive to assumptions about growth rates, margins, capital expenditure, and the discount rate itself. Small changes in inputs produce large swings in output, which limits its reliability as a standalone method in the mid-market.
Comparable public companies. Uses valuation multiples (EV/EBITDA, EV/Revenue, P/E) of listed companies in the same sector as a reference. Requires a discount for size, illiquidity, and the typically lower diversification of mid-market companies compared to listed peers.
Asset-based valuation. Values the company based on the market value of its net assets (assets minus liabilities). Relevant for asset-heavy businesses (real estate, industrial) or distressed situations, but often understates value for profitable operating companies because it does not capture the earning power of the business as a going concern.
Precedent transactions. Analyses actual transaction prices paid for similar companies in recent years. Provides a market-based reality check but is limited by the availability and transparency of deal data, especially in the private mid-market where many transactions are not publicly disclosed.
Valuation sets the framework for the entire negotiation. A seller who enters a process without a well-supported valuation risks either pricing too high (scaring off serious buyers) or too low (leaving money on the table). A buyer without a clear view of value risks overpaying or losing the deal to a competitor who valued the opportunity more precisely.
In practice, the negotiation rarely revolves around the valuation method. It revolves around the inputs — particularly EBITDA (which EBITDA? historical, normalised, pro-forma?) and the multiple (what justifies a 6x versus a 7x?). The rest of the discussion follows from these two numbers.
For the seller, understanding that the buyer will challenge every input is essential preparation. For the buyer, understanding that the seller has a legitimate emotional and financial perspective on value helps structure a credible offer.
A family-owned packaging manufacturer in central Spain has approached Blue Mountain about a potential acquisition. Here is how the valuation unfolds:
The company reports revenue of 22 million euros and a declared EBITDA of 3.1 million. After normalisation (adjusting for the founder’s above-market salary, personal expenses, and a non-recurring legal settlement), the normalised EBITDA is 3.5 million.
Blue Mountain applies three methods:
The triangulation points to an enterprise value range of 20-23 million. After deducting net debt of 4 million and adjusting for surplus working capital, the equity value range is 17-20 million. Blue Mountain’s opening offer is 18.5 million for the equity.
No single method is universally superior. In the mid-market, the EBITDA multiples approach is the most practical and widely accepted because it reflects actual market prices. The DCF is theoretically more complete but depends heavily on assumptions. Best practice is to use multiple methods and triangulate the results, giving more weight to the method most appropriate for the specific company and sector.
Several factors contribute to the “valuation gap.” The seller has invested years — often decades — of their life in the business and naturally assigns emotional value that the buyer does not share. The seller also tends to project optimistic growth, while the buyer discounts for risk and uncertainty. Additionally, the seller may not be aware of recent comparable transactions or may compare their company to larger, higher-growth businesses. This gap is natural and expected; the negotiation process exists to bridge it.
Yes, and it is advisable. Engaging an independent advisor to prepare a pre-sale valuation gives the owner a realistic view of market value, identifies areas where value can be improved before going to market, and helps set expectations. The cost is modest relative to the transaction amounts involved and frequently pays for itself through better deal outcomes.
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