Business valuation: how companies are priced

DCF, market multiples, asset-based valuation, Berkus, VC Method, business valuation isn’t one technique but a family of competing approaches that often produce wildly different numbers for the same company. Here’s how to read them, and when each one actually applies.

Introduction

In January 2022, Microsoft announced the acquisition of Activision Blizzard for $68.7 billion: a deal that closed in October 2023. The day before the announcement, Activision’s unaffected market capitalisation stood at around $51 billion. The gap: roughly $18 billion, paid above what every analytical model said the studio was worth.

That gap has a name. It is called an acquisition premium, and it sits at the heart of business valuation. A company’s value is not a fact engraved in reality. It is an intellectual construction, a forecast, a bet. Use a different method and the same company can come out worth two or three times more or less.

What most people don’t realise is that investment bankers, venture capitalists, and founders aren’t searching for the true value of a company. They’re building a persuasive, numbers-backed argument compelling enough for a deal to happen. Understanding the mechanics behind that argument means understanding a decisive part of how the global economy actually works.

What you’ll learn

This Fundamental covers the three core valuation families, how DCF works in practice, sector-specific multiples, and the specialized methods used for startups, with data, worked examples, and real figures throughout.

Business valuation: how companies are priced

Introduction

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