When a business owner considers selling their company, or when an investor plans to acquire one, two concepts consistently arise in discussions: price and Valuation. These terms are often used interchangeably. However, they refer to two very different realities, and confusing them can lead to misunderstandings—or even failed transactions.
Understanding the difference between business Valuation and transaction price is therefore essential to successfully approach a company transfer or acquisition.
Business Valuation: A Technical and Theoretical Estimate
Business Valuation is an economic estimate of a company’s value at a specific point in time. It is based on objective financial, commercial, and operational data, analyzed using well-established Valuation methods.
However, even though Valuation relies on quantitative data, it remains theoretical by nature. It depends on assumptions, forecasts, and interpretations, which means it cannot be considered an absolute truth.
The Main Business Valuation Methods Used
In practice, several Valuation methods are usually combined to determine a value range rather than a single figure.
1. The multiples method
This method consists of multiplying a financial indicator—most commonly EBITDA—by a multiple determined by the company’s industry, size, and growth potential.
It is widely used because it allows for quick comparisons with similar transactions. However, the choice of the multiple is subjective and highly dependent on economic and sector-specific conditions.
Its limitations are well documented in specialized business Valuation resources.
2. The Discounted Cash Flow method
The Discounted Cash Flow (DCF) method is based on estimating the company’s future cash flows, which are then discounted to their present value by taking into account risk and the cost of capital.
This approach is particularly relevant for companies with strong visibility on future performance. Nevertheless, it is highly sensitive to assumptions regarding future growth, profitability, and the chosen discount rate, which reflects the subjective perception of risk.
3. Adjusted Net Asset Value Method
This method is based on the company’s balance sheet, adjusting assets and liabilities to their fair market value. It is often used for asset-heavy or holding-type companies.
However, it does not always reflect the company’s future value creation potential.
A Reference Value, But Never a Certainty
By combining these different methods, an objective Valuation range can be established, serving as a basis for discussion. It is important to note that a well-prepared company—with a clear strategy, a coherent vision, and a compelling story—will often achieve a higher Valuation than another company with similar financial figures.
Transaction Price: When Theory Meets Reality
Unlike Valuation, the transaction price is the amount actually paid by the buyer and accepted by the seller at the end of the negotiation process.
In other words, price is the result of a process—not a calculation.
Non-Financial Factors Also Play a Role
The final transaction price is influenced by many factors that Valuation models do not always capture, such as:
Contractual terms (warranties, non-compete clauses, Earn-out mechanisms)
Post-sale involvement of the seller
Retention of key employees or management teams
Economic and industry conditions
Level of competition among buyers
Negotiation skills of the parties involved
These elements can significantly increase or decrease the final price paid.
Buyers primarily purchase a company’s future, while sellers often sell their past.
Power dynamics also play a decisive role. A seller who is under pressure, poorly prepared, or insufficiently advised risks selling below the company’s true value. Similarly, a buyer who is poorly structured, inadequately supported, or underfinanced will struggle to submit an optimized offer.
Finally, price is not the only variable in a negotiation. Many other terms can have a significant impact, and negotiations usually cover the entire deal structure—not just the price.
A Matter of Perspective and Negotiation
Conclusion: Two Complementary but Distinct Concepts
The distinction between business Valuation and transaction price is essential in any company transfer or acquisition.
Valuation is based on technical methods and results in a theoretical reference value
Price is the outcome of negotiation, incorporating financial, human, and strategic factors
At B2 Transmission, our support focuses on narrowing the gap between Valuation and price by preparing the company in advance and securing every stage of the sale or acquisition process.
A successful transaction is, above all, a well-prepared, structured, and balanced transaction.