---
name: olo-dcf-valuation-6552ccbb6d6a
version: 1.0.0
description: DCF valuation methodology for M&A due diligence — projections, sensitivity analysis, and terminal value calculation
author: ololand.ai
author_url: https://ololand.ai
license: MIT
triggers:
  - dcf
  - discounted cash flow
  - wacc
  - terminal value
  - enterprise value
  - intrinsic valuation
  - equity value
  - free cash flow
tags:
  - finance
  - valuation
  - m-and-a
  - due-diligence
---

# DCF Valuation for M&A Due Diligence

Build discounted cash flow models for target company valuation in M&A contexts.

## Unit System (Critical)

- **Storage**: Absolute dollars (raw financial data)
- **Calculation**: Millions (DCF models expect this)
- **Display**: Smart formatting (B/M/K based on magnitude)
- Never pass raw stored values directly into DCF calculations without unit conversion

## Validation Before Calculation

1. Verify base revenue exists and is non-zero
2. Confirm WACC is between 5-25% (flag outliers with explanation)
3. Terminal growth must be less than WACC (Gordon Growth Model constraint)
4. Projection period: 5-10 years (default 5)
5. Verify EBITDA margins are within plausible industry range

## Default Assumptions

| Parameter | Default | Rationale |
|-----------|---------|-----------|
| Tax rate | 21% (US) / 17% (SG) | Adjust per jurisdiction |
| CapEx as % of revenue | 5% | Adjust per industry (SaaS ~3%, manufacturing ~8-12%) |
| Terminal growth | 2.5% | Should not exceed long-term GDP growth |
| WACC | CAPM-calculated | Fallback: 10-12% for mid-market |
| Depreciation | % of CapEx | Match to industry capital intensity |
| Working capital change | % of revenue delta | Use historical average if available |

## WACC Calculation (CAPM)

```
Cost of Equity = Risk-Free Rate + Beta × Equity Risk Premium
WACC = (E/V × Cost of Equity) + (D/V × Cost of Debt × (1 - Tax Rate))
```

- Risk-free rate: 10-year Treasury yield
- Equity risk premium: 5-7% (Damodaran)
- Beta: Use comparable public companies, unlever/relever for target capital structure
- Size premium: Add 2-4% for small/mid-market targets

## Projection Methodology

1. **Revenue**: Start from last reported, apply growth rates (declining toward terminal)
2. **EBITDA**: Apply margin assumptions (converge toward industry median)
3. **Free Cash Flow**: EBITDA - Taxes - CapEx - Change in Working Capital
4. **Terminal Value**: Gordon Growth Model or Exit Multiple method
5. **Discount**: Apply WACC to each year's FCF + terminal value

## Terminal Value

Prefer **Exit Multiple method** for M&A (matches how buyers think):
- Apply EV/EBITDA multiple to terminal year EBITDA
- Cross-check with Gordon Growth implied multiple
- Flag if implied perpetuity growth exceeds 3%

## Required Output

Always present:
- **Enterprise Value** range (low / base / high)
- **Equity Value** (EV - net debt)
- **Implied EV/EBITDA multiple** (sanity check against comparables)
- **Sensitivity table**: WACC (rows) vs Terminal Growth or Exit Multiple (columns)
- **Football field chart** if multiple valuation methods available

## M&A-Specific Considerations

- Apply a **control premium** (20-40%) if valuing for acquisition vs. minority stake
- Consider **synergy value** separately from standalone DCF
- Discount rate should reflect **buyer's cost of capital**, not target's
- Model **integration costs** as a deduction from synergy value
- Present **with-synergies** and **without-synergies** valuations separately


---
Source attribution: modbender
Original project: https://github.com/modbender/skill-library-mcp/blob/d9c8fe903b5b4e82237dbe8d0df8567783022e18/data/olo-dcf-valuation/SKILL.md
License: MIT
License information: https://opensource.org/license/mit
Original upstream instructions; downloaded from Mega AI Hub.

## Upstream license notice

MIT License

Copyright (c) 2025 skill-library-mcp contributors

Permission is hereby granted, free of charge, to any person obtaining a copy
of this software and associated documentation files (the "Software"), to deal
in the Software without restriction, including without limitation the rights
to use, copy, modify, merge, publish, distribute, sublicense, and/or sell
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furnished to do so, subject to the following conditions:

The above copyright notice and this permission notice shall be included in all
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THE SOFTWARE IS PROVIDED "AS IS", WITHOUT WARRANTY OF ANY KIND, EXPRESS OR
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SOFTWARE.



# Mega AI Hub resource metadata

Creator / publisher: modbender
Original project: https://github.com/modbender/skill-library-mcp/blob/d9c8fe903b5b4e82237dbe8d0df8567783022e18/data/olo-dcf-valuation/SKILL.md
Attribution basis: Source repository record

Fields of work: Finance & Accounting, Marketing, Sales
Roles: Accountant, Business Development, CFO / FP&A, Financial Analyst, Growth Marketer
Specialties: API
Tools: Dcf Modeling Tool
Country applicability: Singapore, United States
Classification basis: Source catalog labels
Instruction SHA-256: 9d16d146d55992bb8818024ba18e68804b141fff73018ffa72cc9f07cfd0c50e