As an associate in the M&A department at Alpha Capital, one of the fundamental models I frequently used was the Discounted Cash Flow Model. I applied it for evaluating several M&A deals, one of the notable ones being the acquisition of a manufacturing company by a private equity firm.
We began by conducting an extensive financial due diligence on the company to be acquired. It involved examining historical cash flows and predicting future free cash flows. We also considered various macro and microeconomic factors as part of our assumptions. We then calculated the Weighted Average Cost of Capital (WACC) to use as our discount rate. The DCF model allowed us to calculate the intrinsic value of the company.
We presented the valuation results to our client, and after negotiations based on our calculations and market conditions, the deal was successfully closed below our valuation, achieving a favorable deal for our client. Using the DCF model, we managed to execute an acquisition that was expected to generate significant returns for the PE firm.