Home > Store

Valuation for Mergers and Acquisitions, 2nd Edition

Register your product to gain access to bonus material or receive a coupon.

Valuation for Mergers and Acquisitions, 2nd Edition


  • Sorry, this book is no longer in print.
Not for Sale



Concise, focused, practical, up-to-date financial advice for valuation of companies in potential mergers, acquisitions, and restructurings.

  • Guidance on accounting, tax issues, and avoiding common errors that cause incorrect valuations
  • Covers discounted cash flow analysis, earnings multiples analysis, adjusted present value analysis, economic value analysis, and real option analysis, the accounting structure of a deal, accounting for goodwill, and more
  • Contains brief, up-to-date real-world examples and case studies


  • Copyright 2013
  • Dimensions: 6" x 9"
  • Pages: 256
  • Edition: 2nd
  • Book
  • ISBN-10: 0-13-337267-7
  • ISBN-13: 978-0-13-337267-0

Master the latest insights, lessons, and best practice techniques for accurately valuing companies for potential mergers, acquisitions, and restructurings. Concise, realistic, and easy to use, Valuation for Mergers and Acquisitions, Second Edition has been fully updated to reflect the field's latest and most useful "rules of thumb," compare every modern approach to valuation, offering practical solutions for today's most complex and important valuation challenges. Treating valuation as both an art and a science, it covers the entire process, offering up-to-the-minute real-world advice, examples, and case studies. Leading valuation experts Barbara S. Petitt and Kenneth R. Ferris introduce and compare leading techniques including discounted cash flow analysis, earnings multiples analysis, adjusted present value analysis, economic value analysis, and real option analysis. They fully address related concerns such as the accounting structure of deals, accounting for goodwill, tax considerations, and more. Throughout, they identify common errors that lead to inaccurate valuation, and show how to avoid them. From start to finish, this guide doesn't just make valuation comprehensible: it provides the tools and insight to make valuation work.

For all financial professionals concerned with valuation, especially those involved in potential mergers, acquisitions, and restructurings; and for corporate finance instructors and students in Executive MBA programs concerned with valuation.

Sample Content

Online Sample Chapter

Valuation for Mergers and Acquistions: An Overview

Sample Pages

Download the sample pages (includes Chapter 1 and Index)

Table of Contents

Preface     vii

Chapter 1  Valuation: An Overview     1
Market View     1
1 Why Companies Merge or Acquire: A Historical Perspective     3
   1.1 Mergers and Acquisitions Waves     3
   1.2 Motivations for Mergers and Acquisitions     6
2 Do Mergers and Acquisitions Create Shareholder Value?     8
3 Merger and Acquisition Premiums     9
4 Valuation Process     10
5 Valuation Methods: An Overview     12
   5.1 Relative Valuation Methods     14
   5.2 Direct Valuation Methods     17
   5.3 The Use of Valuation Methods     19
Summary     20
Endnotes      20

Chapter 2  Financial Review and Pro Forma Analysis     23
Market View     23
1 Financial Review     25
   1.1 Ratio Analysis     26
   1.2 Decomposition Analysis     32
1.3 Cash Flow Analysis     42
2 Pro Forma Analysis     49
   2.1 Pro Forma Financial Statements     49
   2.2 Sensitivity, Scenario, and Monte Carlo Simulation Analyses     59
Summary     60
Endnotes   61
Appendix 2A: Mattel’s Financial Statements     66
Appendix 2B: Preparation of a Cash Flow Statement. . . . 69
   Cash Flow Fundamentals     69
   Summary     81
Appendix 2C: Account Forecasting Alternatives     82

Chapter 3  Traditional Valuation Methods     85
Market View     85
1 Earnings Multiples     87
2 Discounted Cash Flow Models     92
   2.1 Operational Dilemmas     92
   2.2 Estimating the Entity Value and Equity Value     104
   2.3 A Survey of Best Practices     108
   2.4 Cross-Border Considerations     109
   2.5 Illustration     111
Summary      118
Endnotes     119
Appendix 3: Some Frequently Asked Questions and Answers About the Free Cash Flow to the Firm Model and Earnings Multiples     124

Chapter 4  Alternative Valuation Methods     133
Market View     133
1 Relative Valuation Methods     136
   1.1 Price Multiples     136
   1.2 Enterprise Value Multiples      141
2 Direct Valuation Methods     144
   2.1 Discounted Cash Flow Models     144
   2.2 Economic Income Models     158
   2.3 Real Option Analysis     165
Summary     170
Endnotes     171
Appendix 4: How to Use the Black-Scholes Model to Value a Red Option      176
   Black-Scholes Model     177
   Luehrman’s NPVq/Cumulative Volatility Approach     178

Chapter 5  Accounting Dilemmas in Valuation Analysis     181
Market View     181
1 Assessing Economic Reality     183
2 Income Statement Transformations: Forecasting Permanent Earnings and Free Cash Flows     185
   2.1 Recurring and Nonrecurring Events     185
   2.2 Revenue Recognition Policy     186
   2.3 Inventory Costing Policy     190
   2.4 Depreciation Policy     193
3 Balance Sheet Transformations: Forecasting the Equity Value of a Company     195
    3.1 Asset Capitalization Policy     196
   3.2 Asset Revaluation Policy     199
   3.3 Off-Balance-Sheet Debt     200
4 Cash Flow Statement Transformations: Forecasting CFFO and Free Cash Flow     205
Summary     206
Endnotes     208

Chapter 6  Financial Reporting and Tax Considerations for Mergers and Acquisitions     211
Market View     211
1 Financial Reporting: To Combine or Not to Combine?     213
2 Consolidated Financial Reporting: Purchase Accounting      214
3 Noncontrolling Interest      218
4 Accounting for Goodwill     220
5 Tax Considerations of Mergers and Acquisitions     222
6 Tax Considerations of Goodwill     224
Summary     225
Endnotes     225

Chapter 7  Some Final Thoughts     229
Market View     229
1 Valuation: A Debriefing      230
2 Some Caveats to Consider     231
3 Closure     233
Endnote.     233

Bibliography     235
Index     239


Submit Errata

More Information

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information

To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.


Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.


If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information

Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.


This site is not directed to children under the age of 13.


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information

If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information

Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents

California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure

Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact

Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice

We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020