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From Greenhorn to Gold(wo)man — Chapter 9

Building the Toolkit

Valuation I: Comps, Precedents, and DCF
CHAPTER 9 OF 13
SBCI, Canary Wharf

Le Pitch's desk faces the river. Three folders sit in a tray marked "Forge". His partner Alain has been mandated to run the dual-track process for Königshof. "Dual-track" means: prepare the company for either a PE sale or a minority investment. Both paths require one thing.

Le Pitch
"Trace, you're lead analyst. Build me a football field by Friday."
Trace
"A what?"
Le Pitch
"A valuation. Range of values. Three methods. Comps, precedents, DCF. You have four days. Königshof is 120 years old. It has a balance sheet. It has a P&L. Make it speak."

Trace nods. She has four days to value a 120-year-old German factory. This is not her first pitch book, but it is the first time her name is at the top.

Everything in finance reduces to one question: What is it worth?

For three centuries, Königshof has made harvesters. The question is not "is it a good business?" (Wilhelm knows it is). The question is "at what price is it a good investment?"

Answer that question correctly, and you make millions. Answer it wrong, and even good businesses destroy value. This is why valuation is the skill that separates PE professionals from the rest.

01
The Three Pillars
The Toolkit
Three Methods. One Question.

There is no single "correct" valuation. There are three perspectives, each answering the question differently:

MethodQuestionLogic
Trading Comps What do similar companies trade for? Market multiples = objective pricing
Precedent Transactions What did acquirers pay for similar companies? Real prices from real M&A deals
Discounted Cash Flow What are future cash flows worth today? Intrinsic value from fundamentals

None is "right". All three are useful. A professional uses all three and reconciles the results. "The football field is not an answer. It is a conversation."

Valuation is not science. It is informed judgment.
02
Trading Comps
Method 1: Trading Comps
What Similar Companies Trade For

Start with a universe of comparable companies. Not identical—there are no identical companies. But similar enough: same industry, similar scale, similar geographies.

For Königshof, the peer set includes AGCO, CNH Industrial, John Deere—publicly listed agricultural equipment manufacturers. Pull their market data. Calculate multiples. Apply to Königshof.

Trading Comps
European Ag Equipment Peers: Public Market Multiples
CompanyMarket CapEV/EBITDAEV/EBIT
AGCO Corp€7.2bn8.5x10.2x
CNH Industrial€18.5bn7.8x9.1x
Argo Investments€2.1bn9.3x11.0x
Median Multiple8.5x10.2x

Apply to Königshof: Adjusted EBITDA (FY24) = €9.9m. At 8.5x, Enterprise Value = €84m.

Bridge
From Enterprise Value to Equity Value
€m
Enterprise Value (at 8.5x)€84.0
Less: Gross Debt€0.0
Plus: Cash€40.0
Equity Value€124.0

Königshof with €40m net cash is worth more to an investor than the EV suggests. That cash is real and available.

Trace's desk, 11pm

The peer list sits next to her coffee. AGCO, CNH, CLAAS (private, excluded), Argo. She pulls market data from Bloomberg. EV/EBITDA multiples trade in a range: 7x to 9x. Königshof adjusted EBITDA of €9.9m sits right at the median of global peers.

"Conservative?" she asks herself. "Or just realistic?"

She writes: "Comps Range: €80m – €100m EV."

Trading comps answer: "What is the market willing to pay?"
03
Precedent Transactions
Method 2: Precedent Transactions
What Acquirers Actually Paid

Trading multiples show what public markets pay. But public markets are patient. Acquirers are impatient. They're buying control. They're integrating operations. They're synergizing. They pay premiums.

Look at historical M&A deals in agricultural equipment. What did buyers pay relative to trading multiples?

Precedent Transactions
European Ag Equipment M&A (Recent Deals)
TargetEBITDAMultiple PaidBuyer Type
Heutech (Germany)€12m10.2xStrategic
Fendt Parts (EU)€8.5m9.8xFinancial
Simba Equipment (Italy)€11m10.5xStrategic
Precedent Median10.2x

Premium to trading comps: Precedents trade at 10x (median) vs. trading comps at 8.5x. That's an 18% premium—standard for acquisition premiums.

Apply to Königshof: At 10x EBITDA = €99m EV.

Skarn Capital, Frankfurt

Haircut sits across from Wilhelm in the family office on the Zeil. Wilhelm's lawyer is on mute. Wilhelm's CFO is taking notes in German shorthand.

Haircut has not yet named a number. He is waiting for Wilhelm to commit to what "fair value" means.

Haircut
"We buy companies every few years. We understand the industrial equipment market. Königshof is interesting."
Wilhelm
"Interesting is not a price."
Haircut
"Neither is pride. But that is what most family businesses are built on. We're trying to understand if there's another story."
Precedent transactions answer: "What has the market paid?"
04
Discounted Cash Flow

DCF is different. It ignores what the market is paying today. It asks: "What is the business fundamentally worth based on what it will earn in the future?"

It requires three steps: the discount rate, the cash flows, the terminal value. Each requires judgment. Together they produce a number that is more precise than accurate.

DCF Part 1: Discount Rate
What Rate Should We Use?

The discount rate is the blended cost of all capital sources: equity and debt. It's called WACC—Weighted Average Cost of Capital. It answers: "If I invest €1 in this business, what return should I demand?"

ComponentRateWeight
Risk-free rate (German Bunds)3.5%—
Equity risk premium5.5%—
Beta (company risk)1.1x—
Cost of Equity9.6%85%
Cost of Debt (post-tax)3.8%15%
WACC8.9%100%

Interpretation: Every euro invested in Königshof must earn at least 8.9% annually for you to break even on your cost of capital. Anything above that is value creation.

DCF Part 2: Cash Flow Projections
Five Years of Explicit Forecasts

Project EBITDA forward 5 years using assumptions from the model (capacity, utilisation, price, costs). Convert EBITDA to Free Cash Flow.

YearFY24EFY25EFY26EFY27EFY28E
EBITDA€9.9m€11.0m€12.3m€13.8m€15.4m
Less: Tax€2.0m€2.2m€2.5m€2.8m€3.1m
Less: Capex€1.5m€1.6m€1.8m€2.0m€2.2m
Plus/Less: WC€0.5m€0.3m€0.2m€0.1m€0.0m
Free Cash Flow€6.9m€7.5m€8.2m€9.1m€10.1m
DCF Part 3: Terminal Value
What Happens After Year 5?

The explicit forecast ends in Year 5. But the business doesn't. It keeps generating cash forever (or until it doesn't). We assume a steady-state perpetual growth rate and calculate terminal value using the Gordon Growth Model.

Gordon Growth Model
TV = FCF₅ × (1+g) / (WACC - g)

Assumptions:

  • FCF₅ = €10.1m (Year 5 FCF)
  • g = 2.0% (perpetual growth rate)
  • WACC = 8.9%

Terminal Value = €10.1m × 1.02 / (0.089 - 0.02) = €148.0m

This number—€148m—is where 70% of the valuation lives. Most of the value is in the part we can't see.

Her desk, 2am

She's staring at the DCF model. The terminal value is enormous relative to the explicit forecast. A 1% change in the perpetual growth rate changes the valuation by €30m. A 0.5% change in WACC moves it by €40m.

"This isn't precision," she mutters. "This is beautiful fiction."

She types it into the model anyway. Because that is what the job is.

DCF Valuation
Königshof: From Cash Flows to Enterprise Value
€m
PV of Explicit FCF (FY25-FY28)€31.2m
PV of Terminal Value€98.4m
Enterprise Value€129.6m

At base case assumptions (2% growth, 8.9% WACC), DCF suggests €130m enterprise value. But sensitivity to terminal value assumptions is extreme.

DCF answers: "What should it be worth?"
05
The Football Field
Valuation Summary
Three Methods, One Chart

Now reconcile the three methods. Each answers the question differently. Together they form a "football field"—a range of reasonable values.

Trading Comps
€80–100m
€80–100m
Precedent Transactions
€90–110m
€90–110m
DCF Analysis
€85–135m
€85–135m
Le Pitch's office, Friday 6pm

Trace presents the football field. Three bars. Three ranges. Comps: €80–100m. Precedents: €90–110m. DCF: €85–135m. The bars overlap. There's a reasonable range where all three methods agree: €85–110m.

Le Pitch
"Three pillars. Clean work. What's the midpoint?"
Trace
"€97m. Call it €100m for the story."
Le Pitch
"Good. Now make the bars wider."
Trace
"Why?"
Le Pitch
"Because every advisor we show this to will want to argue their case. Give them room to argue."

She sighs. The art of valuation is the art of justified imprecision.

The football field is a conversation, not an answer.

Three methods. Three perspectives. Each illuminates a different angle on value. Trading comps show what the market pays today. Precedents show what acquirers have paid. DCF shows what fundamentals suggest.

The true value of Königshof sits where all three agree. Not at €85m (too bullish on comps), not at €135m (assumes perfect execution). Somewhere in the €85–110m range. Call it €100m.

But this is not the answer. This is the starting point of the negotiation.

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