Every valuation model tells a story—but no single model tells the whole story. A DCF might show what a business is worth based on future cash flows. Market comps reflect how investors are pricing similar companies. Precedent transactions capture what real buyers have paid. And an LBO reveals what a financial sponsor could afford based on return expectations.
Each method offers a different lens. In practice, investment bankers rarely rely on just one. Instead, they build multiple models, compare the results, stress-test assumptions, and combine everything into a defensible valuation range. This process is known as triangulation.
In this article, you'll learn how bankers blend different valuation outputs, judge which methods carry more weight, and communicate valuation ranges to clients in a way that supports negotiations, pricing discussions, and strategic decisions.
Why No Single Method Is Enough
Valuation is not about finding the “true” number. It’s about building a range of reasonable values, each anchored in a different logic. This is especially important in situations like:
- M&A deals, where buyers and sellers see value differently
- IPOs, where markets need confidence in how a company is priced
- Fairness opinions, where boards require multiple lenses to assess a deal
For example, a DCF might value a business at $480 million, but public comps might imply a value of $430 million, and recent M&A deals suggest a range around $450 million to $500 million. Meanwhile, an LBO model shows that a PE buyer could pay up to $410 million and still hit a 20% return.
The job of the banker is to bring these perspectives together, explain why the numbers differ, and build a narrative that makes sense for the deal at hand.
How Bankers Decide Which Methods Matter Most
Not all valuation methods carry the same weight in every situation. Bankers evaluate which approaches are most relevant based on the type of transaction, the company’s characteristics, and the quality of available data. The goal isn’t to average the numbers—it’s to judge which methods are more credible and useful for that specific context.
Here’s how that judgment typically works in practice:
In a Sale Process (M&A Sell-Side)
Bankers often place greater emphasis on Precedent Transactions and DCF. Precedents show what strategic or financial buyers have paid in similar deals, and DCF allows for a company-specific growth story to be reflected. If private equity firms are in the mix, an LBO model helps anchor the low end of the range. Public comps may still be used, but they’re often less relevant if the target company is private or quite different from listed peers.
In an IPO
Comparable Company Analysis usually takes the lead. The market wants to know how the company compares to similar public companies, because the IPO will be priced relative to them. DCF may be used to support the internal view of long-term value, but market comps tend to dominate here because the IPO is ultimately a market-driven event.
In a Buy-Side M&A Mandate
Buyers want to understand both what the business is worth on a standalone basis (through DCF or LBO) and what the market might expect them to pay (through comps and precedents). This combination helps assess whether a deal is too expensive, undervalued, or aligned with investor expectations.
In a Fairness Opinion
All major methods are used. The point here is not just to arrive at a value but to demonstrate that the valuation is well-supported, methodical, and defensible under legal and fiduciary scrutiny. That’s why fairness opinions often include detailed DCF outputs, multiple comps, and full precedent analysis—even if some methods are less relevant.
The key is knowing which ones to trust more depending on the situation. This weighting is part of the art of banking: it’s where financial analysis meets professional judgment.
How Valuation Ranges Are Presented to Clients
Once the models are built and weighted, the banker’s job shifts from analysis to communication. The output of all this work is not a single number—it’s a valuation range, and how that range is framed can shape expectations, drive negotiations, and anchor strategic decisions.
Valuation ranges are usually presented in summary tables or football fields—a visual format that shows where each method lands and how the numbers compare. But the power isn’t in the format. It’s in the explanation behind the numbers.
What a Typical Valuation Range Looks Like
Imagine a company being valued ahead of an M&A process. The analysis might yield:
- DCF range: $470 million to $510 million
- Public Comps: $440 million to $480 million
- Precedents: $450 million to $520 million
- LBO floor: $410 million
From here, the banker might recommend a negotiation range of $460 million to $500 million, depending on who the likely buyer is. If the buyer is strategic, they might lean toward the high end. If it’s a financial sponsor, the low end may become more important.
How Bankers Frame the Range
Bankers rarely just drop a spreadsheet and walk away. They explain:
- Why certain methods were more relevant in this case
- How the company compares to its peers in growth, margins, or size
- What assumptions were used in the DCF and LBO models
- Where the market is today and how sensitive the valuation is to shifts
This context is what helps a client understand whether an offer is low, fair, or aggressive. It also prepares them to answer questions from investors, boards, and internal decision-makers.
The goal is clarity, not complexity. The models may be technical, but the message must be understandable, actionable, and tailored to the client’s decision.
Closing Thoughts
Valuation in investment banking isn’t about chasing precision but about building a strong, flexible case for what a business is worth. By combining different methods, bankers create a range grounded in logic, market data, and financial rigor. That range becomes the foundation for deal pricing, negotiation strategies, IPO positioning, and client advice.
Each model brings something different to the table. DCF captures long-term potential. Comps reflect current investor sentiment. Precedents show what buyers have actually paid. LBOs set a return-based limit. When used together—and interpreted carefully—they help bankers move from numbers to narratives, from assumptions to strategy.