medium · Investment Banking valuation-core
In a sell-side process, an analyst is constructing a 'Valuation Football Field'. The DCF range is $1,000–$1,200 million, while the LBO Floor is $800–$850 million.
What is the most likely explanation for this divergence?
- The DCF includes revenue synergies that the standalone LBO model fully excludes.
- The LBO is return-constrained while the DCF is based on intrinsic cash flows and lower WACC.
- The DCF must be wrong here, since it should always trade below the LBO floor value.
- The company has very low leverage capacity, which artificially inflates the resulting DCF value.
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