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Validation of valuations and financial models

Validation of a valuation or financial model - independent expert opinion

A valuation or financial model prepared by the other party to the deal, an in-house team or another advisor may contain errors, overly optimistic assumptions or a methodology that is not fit for purpose. This is easiest to detect before the contract is signed - much more difficult after.

Validation of a valuation or financial model is an independent assessment of the quality and correctness of the analytical material provided before a transaction decision is made.

What are we verifying?

- We assess the methodological correctness of the valuation methods used, the adequacy of the parameters (discount rates, growth rates, market multipliers), the internal consistency of the calculations and the completeness of the disclosures. We point out areas where theassumptions usedare aggressive or unjustified in relation to market data.
  
  We have access to Bloomberg and Refinitivservices , which allows us to objectively compare parameters with market data.
- We verify the correctness of formulas, consistency of model logic, quality of structure and auditability. We verify that the financial model actually counts what it is supposed to, andthat the sensitivity of the results to key parameters is reliable and free ofmethodologicalerrors . We verify both investment models, valuation models, and models prepared for financing andrestructuring purposes.
- Independent evaluation of the models used to verify the compatibility of public support with market investor principles.
- In situations of dispute between partners, in litigation, arbitration or transactional negotiations,an independent expert opinion disputing or confirming a particular valuation is needed. We prepare expert opinions and are ready to defend them directly against the other party or an expert witness.

When is it a good idea to have a valuation or financial model validated?

Validation of a valuation or financial model is particularly important when a business decision is based on one key analytical document.

You have received a business valuation from a seller and want to know if the price is reasonable,
The bank or fund provides its own valuation as a basis for financing terms,
An internal financial model has been built by different people over several years, and no one is sure if it still works properly,
You are involved in a dispute with a former shareholder in which the value of the shares is crucial,
Management or the board of directors expects an independent review before approving a transaction,
A public or regulatory body requires independent validation of a financial model.

FAQ

- Valuation validation is an independent assessment of the correctness of the methodology, parameters and assumptions used in valuing a business, asset or financial instrument. Its purpose is to identify errors and risks before making a business decision.
- It is a good idea to validate a valuation before buying or selling a company, obtaining financing, having a transaction approved by the board of directors, or when there is a dispute between shareholders.
- Validation of a financial model includes analysis of the correctness of formulas, model logic, input parameters and consistency of calculations. We verify that the model correctly reflects business assumptions and generates reliable results.
- Yes. We validate DCF models, investment models, models for financing, restructuring and models built for M&A transactions.
- An expert opinion is particularly useful in shareholder disputes, litigation, arbitrations or when challenging a valuation prepared by the other side of a transaction.
- Validation can reveal formula errors, logical inconsistencies, unwarranted market assumptions, erroneous DCF parameters, and risks affecting the final outcome of the analysis.