How sell-side advisors help optimise valuation credibility

The buyers might perceive the valuation to be indefensible and over-inflated without rational proof. When the logic of valuation is clouded during the initial phase, decision-making proceedings will already be compromised. Previous issues might result in misaligned price expectations and prolonged unproductive negotiations.

Overly optimistic valuation usually stems from the seller’s emotional investment from years of building the business. Without support from verified facts, the founders’ overconfidence might bias the assessment of future growth, resulting in a distorted valuation.

Translating the seller’s vision into a credible and negotiable valuation is the essential role of a sell-side advisor. This way, the valuation will be perceived as justified by the sophisticated buyer. 

A sell-side advisor assists the seller in optimising the valuation credibly in the following ways:

1. Calibrate the valuation objectively. By calibrating the valuation, the sell-side advisor aligns the intrinsic valuation of the business with market benchmarks (i.e. comparables and precedent transactions). Valuation calibration gives advisors and sellers the justification for the intrinsic valuation outcome compared to the market value.
2. Translate future growth to be underwritable. Advisors cannot improve the business growth, but rather translate the sellers’ growth narratives into underwritable insights. In this step, sell-side advisors dissect growth narratives into quantifiable and measurable metrics (e.g. future revenue generated is calculated using price multiplied by quantity). This step is essential for buyers to capture the in-depth business model in more detail, and to justify the future assumptions.
3. Narrate the valuation to meet the buyer’s perspective. Having a buyer-focused perspective is key in sell-side transactions. The goal of this step is to meet the buyers’ wants from the deal. Rather than narrating a positive business valuation based on the seller’s vision, the buyer-focused mindset redirects the narrative based on concrete aspects. Effective sell-side advisory does not eliminate sellers’ optimism, but instead structures it. By transforming the subjective expectations of the sellers into data-driven, market-verified valuation logic, sell-side advisors increase the probability of deal execution.

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At Protemus Capital, Esther Asti Febrianti serves as an Analyst, supporting M&A advisory projects through research, financial analysis, and valuation discipline. She works closely with associates to develop data-driven insights that support credible transaction outcomes.