Valuing unlisted companies in mergers and acquisitions (M&A) presents unique challenges, primarily due to the absence of publicly available market prices. In India, the space of private equity and venture capital has been increasingly active, with 1,839 deals announced in 2023, growing by 42% to 2,606 deals in 2024
This increase in private deals highlights how critical it is to use reliable valuation methods when assessing unlisted companies. Investors and acquirers need accurate valuations to determine fair pricing, evaluate strategic opportunities, and reduce investment risk.
In this blog, we explore the top 10 methods used to value unlisted companies, explaining practical approaches and considerations for M&A and private equity transactions.
Key Takeaways:
Unlisted company valuation requires multiple methods—market comparables, precedent transactions, DCF, and asset-based approaches—to ensure a robust and defendable value.
Adjustments for illiquidity, private ownership, industry, and geographic factors are essential to reflect realistic exit potential and market conditions.
Terminal value estimation captures long-term value beyond projection periods, using either perpetuity growth or exit multiples.
Blending methods and applying weighted averages reduces reliance on any single assumption and provides a well-rounded valuation.
Practical application of these methods supports M&A, private equity, and strategic investment decisions, with structured processes improving transparency and defensibility.
List of Top 10 Methods for M&A Valuation for Unlisted Companies
Valuing unlisted companies for mergers and acquisitions (M&A) requires a structured approach to capture their true worth, despite the absence of public market pricing.
Investors and acquirers must combine market benchmarks, historical transaction data, projected cash flows, and adjustments for private ownership, illiquidity, and sector-specific risks.
The following ten methods provide a comprehensive toolkit to assess value, compare alternatives, and ensure informed investment or negotiation decisions
1. Comparable Company Analysis (CCA)
CCA benchmarks an unlisted company against publicly traded peers in the same sector to provide a market-based valuation reference. It is used when investors need to gauge what similar companies are trading at and when sufficient public data exists to reflect sector trends.
This approach is particularly useful in M&A negotiations or private equity deals where market multiples help validate internal forecasts and pricing assumptions.
Application & Considerations
Identify 3–5 listed peers with similar business models, size, and geography.
Adjust multiples for growth, profitability, leverage, and operational differences.
Apply illiquidity discounts and account for minority stakes.
Use as a sanity check alongside DCF or precedent transaction valuations.
Key Metrics & Formula
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2. Precedent Transaction Analysis
Examines historical M&A deals of similar companies to derive valuation multiples and acquisition premiums. Applied when reliable past transactions exist in the same sector, it reflects actual premiums paid and strategic considerations in comparable deals.
Useful for structuring offers and benchmarking unlisted targets.
Application & Considerations
Select comparable transactions within the last 3–5 years for sector relevance.
Adjust for market conditions, deal structure, and time-related changes.
Reflect any control premiums or minority discounts applicable to the target.
Combine with other methods for triangulated valuation.
Key Metrics & Formula
3. Discounted Cash Flow (DCF) Analysis
DCF estimates the present value of projected free cash flows, capturing intrinsic value based on company-specific growth, margins, and capital requirements.
It is applied when detailed projections are available and investors want to model risk-adjusted scenarios. Commonly used in strategic acquisitions, PE investments, and long-term planning.
Application & Considerations
Forecast cash flows for 5–10 years, incorporating realistic growth and expense assumptions.
Calculate WACC including equity and debt components.
Test sensitivity to discount rates and terminal growth assumptions.
Combine with market-based approaches for robustness.
Key Formula
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4. Asset-Based Valuation
Values a company based on net assets minus liabilities. Primarily used for asset-heavy or distressed firms. Investors apply this when assets constitute the bulk of value and for risk-averse floor valuations.
Application & Considerations
Include tangible and intangible assets, adjusting for fair market value.
Factor in off-balance sheet liabilities or contingencies.
Use liquidation value when evaluating distressed scenarios.
Less useful for high-growth or intangible-heavy businesses.
Key Formula
Adjusted Net Asset Value = Total Assets (fair value) – Total Liabilities
Liquidation Value = Expected asset proceeds – transaction costs
5. Earnings Capitalisation
Capitalises normalised earnings using industry-specific capitalisation rates. Best applied for mature companies with stable, predictable earnings. It helps investors convert recurring profits into enterprise value.
Application & Considerations
Normalise earnings for seasonality, one-offs, or extraordinary items.
Select capitalisation rates reflecting risk, sector, and marketability.
Apply discounts for minority ownership or illiquidity.
Useful for mature companies with stable cash flows rather than high-growth startups.
Formula
Company Value = Normalised Earnings ÷ Capitalisation Rate
Also Read: Cash Application Process in Accounting: Impact, Challenges, & Best Practices
