When company founders consider selling their business, valuation becomes a central focus early in the process. Especially with privately held businesses, establishing a credible valuation lays the groundwork for a successful transaction—well before financials and proprietary information are shared under non-disclosure agreements.
In this post, we’ll explain the key valuation concepts, outline the most common valuation methods, and show how experienced sell-side advisors—like our team at Optima Mergers & Acquisitions—help translate business value into price while minimizing surprises along the way.
One of the most important distinctions for a seller is the difference between personal perception of value and objective market valuation. While a founder views their company through years of effort and emotional investment, the market sees it through numbers and risk-adjusted return.
A helpful analogy is Zillow.com. Zillow might estimate a home’s value, but it doesn’t capture memories—Thanksgivings around the table, the height marks on the kitchen wall, or the personal sacrifices made building that home. The same is true in M&A: industry-standard valuation methods offer a baseline value, and it’s the advisor’s job—much like a seasoned real estate broker—to translate that into a marketable, defensible sale price.
There are four generally accepted methods for valuing privately held companies:
This approach analyzes financial metrics (like EBITDA multiples) from similar businesses in the same sector. The more closely aligned the companies are in size, industry, and geography, the more reliable this method becomes.
This method examines actual sale prices of similar companies in past M&A deals. It provides market-based insight into what buyers have been willing to pay—but can be impacted by economic cycles or structural differences in the deals.
DCF projects a company’s future cash flows and discounts them back to present value using industry-standard rates. This method is especially useful for companies with reliable forecasting and serves as a more customized assessment based on internal performance.
Typically used for asset-intensive businesses, companies with limited operating history, or liquidation scenarios. It sums up the fair market value of assets minus liabilities. While seemingly simple, asset-based valuation can involve deeper analysis of intangible assets and depreciation.
Artificial intelligence tools have become more common in M&A valuation. While not “plug-and-play,” they offer speed, accuracy, and a consistent framework for buyers and sellers to evaluate opportunities on a level playing field.
AI-driven models can incorporate local market data in real time and run predictive cash flow models quickly. Critics point to the inability of AI (like any model) to account for qualitative factors like brand value or leadership strength. But as a supporting tool—especially when visualized in “football field” valuation charts—AI is here to stay.
Valuation isn’t the end goal—pricing is. That’s where expert advisors earn their keep.
Sell-side M&A professionals often use a football field valuation chart to present a range of values generated from multiple methods. This range serves as a foundation for setting a strategic asking price that reflects both financial performance and market positioning.
Where real value creation happens, however, is in narrative-driven valuation. For example: did your company outperform competitors during the COVID-19 crisis? Did you maintain profitability when peers faltered? By telling that story and backing it with data, we help highlight leadership strength, operational resilience, and long-term viability—qualities that drive premium pricing.
Once a serious buyer signs an NDA, their team will review the financials and apply their own valuation methods. This is when the sell-side advisor becomes the seller’s best advocate—defending the financial story behind the numbers.
Buyers often challenge expenses, owner compensation, capital expenditures, and working capital assumptions. A prepared advisor can anticipate these inquiries, explain context, and preserve value throughout negotiations.
Valuation is the foundation. Pricing is the strategy. Execution is everything.
At Optima Mergers & Acquisitions, we specialize in guiding business owners through every step of the sale process—from understanding what their business is worth to defending that value in front of sophisticated buyers. Our experience, diligence, and narrative-driven approach help clients achieve better outcomes.
Want to understand what your business is truly worth—and how to maximize it?
Contact our team to start a confidential conversation today.
Choosing the right M&A advisor and legal team with sell-side experience is essential — but it’s only part of the equation. Even with expert guidance, business owners play a critical role in setting the stage for a smooth, efficient, and profitable transaction.
From the AI-fueled data infrastructure boom to private equity putting megadeals back on the table, 2025 is a pivotal year in dealmaking.
Before you share financials or enter negotiations, ask yourself: is this buyer truly qualified? Discover why proper buyer screening can make or break your deal.
