Why two valuations of the same company disagree

Two competent advisers can value the same company on the same date and arrive a long way apart without either being wrong. That surprises people, and it damages negotiations, because both sides assume the other is posturing. Usually they are not. They have made different, defensible choices at four points in the work.

A valuation is not a fact retrieved from the business. It is a conclusion built from stated assumptions — which is why the reasoning matters more than the number.

The method carries the answer

Discounted cash flow, trading comparables, precedent transactions and asset-based approaches ask different questions, and they diverge most exactly where valuation matters most: growing companies, asset-heavy companies, and companies whose earnings do not yet reflect their capacity.

A discounted cash flow rewards a credible forecast and punishes a fragile one. Trading comparables import the market’s current mood about a sector. Precedent transactions carry control premia and the specific motivations of past buyers, some of which were strategic and will not repeat. Asset-based approaches ignore earnings power entirely. Running one method and presenting the output as the value is the single most common failure in the work.

The comparable set is a judgement, not a lookup

Two analysts building a comparable set for the same business will rarely produce the same list. Size, geography, growth profile, margin structure, capital intensity and liquidity all justify inclusion or exclusion, and each choice moves the multiple.

A set skewed toward larger, more liquid companies imports a premium the subject cannot support.
A set drawn from a different geography imports a different cost of capital and a different risk perception.
A small set is volatile; a large one dilutes relevance. Both need stating.
The median and the range matter more than the mean, and the range should be published.

The remedy is disclosure. A comparable set the counterparty can see, test and argue with produces a negotiation. A multiple asserted without its set produces a stand-off.

Normalisation is where most of the gap lives

In owner-managed businesses, the adjustments to reported earnings frequently move the valuation more than the multiple does. Proprietor remuneration above or below market, related-party arrangements, one-off items that recur suspiciously often, rent paid to a connected landlord, personal costs carried by the company, capitalised expenditure that might reasonably have been expensed — each is arguable, and each is amplified by the multiple.

An adjustment of modest size, capitalised at a mid single-digit multiple, becomes a substantial difference in headline value. This is why two valuations can share a method and a comparable set and still disagree materially. It is also why every adjustment should be listed individually with its rationale, rather than netted into a single normalised figure.

Control, minority and marketability

What is being valued is as important as what it is worth. A controlling interest carries the ability to direct cash flow, change management and initiate a sale. A minority interest carries none of that, and in a private company it may carry no route to liquidity at all.

Discounts for lack of control and lack of marketability are routinely applied and routinely disputed, and their size depends heavily on the shareholders’ agreement — drag and tag rights, exit mechanics, dividend policy, pre-emption. Two valuations of the same shareholding can differ almost entirely on how those provisions were read.

Which number gets defended

In a negotiation the number that survives is not the highest or the most sophisticated. It is the one whose owner can explain, line by line, where it came from — and who has already identified the places a counterparty will push.