Skill: aniebyl/olo-dcf-valuation (version 1.0.0)

--- name: olo-dcf-valuation version: 1.0.0 description: DCF valuation methodology for M&A due diligence — projections, sensitivity analysis, and terminal value calculation author: ololand.ai author_url: https://ololand.ai license: MIT triggers: - dcf - discounted cash flow - wacc - terminal value - enterprise value - intrinsic valuation - equity value - free cash flow tags: - finance - valuation - m-and-a - due-diligence --- # DCF Valuation for M&A Due Diligence Build discounted cash flow models for target company valuation in M&A contexts. ## Unit System (Critical) - **Storage**: Absolute dollars (raw financial data) - **Calculation**: Millions (DCF models expect this) - **Display**: Smart formatting (B/M/K based on magnitude) - Never pass raw stored values directly into DCF calculations without unit conversion ## Validation Before Calculation 1. Verify base revenue exists and is non-zero 2. Confirm WACC is between 5-25% (flag outliers with explanation) 3. Terminal growth must be less than WACC (Gordon Growth Model constraint) 4. Projection period: 5-10 years (default 5) 5. Verify EBITDA margins are within plausible industry range ## Default Assumptions | Parameter | Default | Rationale | |-----------|---------|-----------| | Tax rate | 21% (US) / 17% (SG) | Adjust per jurisdiction | | CapEx as % of revenue | 5% | Adjust per industry (SaaS ~3%, manufacturing ~8-12%) | | Terminal growth | 2.5% | Should not exceed long-term GDP growth | | WACC | CAPM-calculated | Fallback: 10-12% for mid-market | | Depreciation | % of CapEx | Match to industry capital intensity | | Working capital change | % of revenue delta | Use historical average if available | ## WACC Calculation (CAPM) ``` Cost of Equity = Risk-Free Rate + Beta × Equity Risk Premium WACC = (E/V × Cost of Equity) + (D/V × Cost of Debt × (1 - Tax Rate)) ``` - Risk-free rate: 10-year Treasury yield - Equity risk premium: 5-7% (Damodaran) - Beta: Use comparable public companies, unlever/relever for target capital structure - Size premium: Add 2-4% for small/mid-market targets ## Projection Methodology 1. **Revenue**: Start from last reported, apply growth rates (declining toward terminal) 2. **EBITDA**: Apply margin assumptions (converge toward industry median) 3. **Free Cash Flow**: EBITDA - Taxes - CapEx - Change in Working Capital 4. **Terminal Value**: Gordon Growth Model or Exit Multiple method 5. **Discount**: Apply WACC to each year's FCF + terminal value ## Terminal Value Prefer **Exit Multiple method** for M&A (matches how buyers think): - Apply EV/EBITDA multiple to terminal year EBITDA - Cross-check with Gordon Growth implied multiple - Flag if implied perpetuity growth exceeds 3% ## Required Output Always present: - **Enterprise Value** range (low / base / high) - **Equity Value** (EV - net debt) - **Implied EV/EBITDA multiple** (sanity check against comparables) - **Sensitivity table**: WACC (rows) vs Terminal Growth or Exit Multiple (columns) - **Football field chart** if multiple valuation methods available ## M&A-Specific Considerations - Apply a **control premium** (20-40%) if valuing for acquisition vs. minority stake - Consider **synergy value** separately from standalone DCF - Discount rate should reflect **buyer's cost of capital**, not target's - Model **integration costs** as a deduction from synergy value - Present **with-synergies** and **without-synergies** valuations separately


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