We are preparing to sell our business, but our industry is highly cyclical and we are currently at the peak of the market cycle. How do we use absolute valuation methods and discounted cash flows to defend our premium valuation if the buyer insists a market downturn is imminent?

Question

Tyler Smith · Accepted Answer

To defend your premium valuation during a cyclical peak, you must move the conversation away from short term market volatility and focus on absolute valuation methods. Buyers will naturally try to use the threat of an impending downturn to apply a steep discount to your current earnings. Under professional valuation frameworks, such as the absolute valuation principles established by Irving Fisher, a company's true intrinsic value is determined by the discounted valuation of its future cash flows over an entire economic cycle. You must build a multi scenario discounted cash flow model that demonstrates your business's resilience. Show how your operational efficiencies and lean cost structure allow you to maintain solid margins even during a contraction. Within the EOS® framework, you can back this up by showing your V/TO®. The V/TO® outlines your long term strategy and proven ability to execute. Your weekly Scorecard history proves that your leadership team manages costs dynamically. By presenting a rigorous, cycle-adjusted discounted cash flow model paired with proof of operational discipline, you prove that your business is built to survive downturns. This forces the buyer to value your company based on its long term intrinsic economic value rather than trying to price it at a cyclical trough.