Valuation in cross‑border M&A involves far more variables and higher complexity than domestic work, and even seasoned practitioners can find it challenging at times. This article presents a 10‑point, practitioner‑oriented checklist to help US/European buyers—especially those evaluating deals in Asia (notably Southeast Asia and India)—rapidly stress‑test decision assumptions before committing to a view. It is designed to be used from pre‑DD non‑binding LOI through final bid formation, helping you maintain a logically consistent approach that supports sound investment screening, negotiation, and decision‑making.
Valuation models based on financials are the foundation for business decisions; they are not the decision itself. Precisely for that reason, assumptions must be cleanly and correctly organized. Across the ten topics below, the most common issues we see are omissions and double counting. Basic theoretical primers (DCF mechanics, WACC construction, currency–inflation alignment, and the role of multiples) are out of scope here so we can focus on what changes outcomes in practice.
The Checklist (10 Items)
1) When deriving EV via DCF, are you using the correct free cash flow (FCF)?
Enterprise Value (EV) is obtained by discounting FCFF (unlevered free cash flow) at the WACC. EV represents a debt‑neutral business value; Equity Value = EV − Net Debt (plus other equity bridge items). Using FCFE (levered FCF) to compute EV is internally inconsistent because FCFE embeds interest and net borrowing. In many jurisdictions (including Japan), interest paid can appear within operating CF, so you must adjust to an unlevered view when constructing FCFF. If you want to explicitly value the tax shield, the APV approach is appropriate.
2) Have you normalized EBITDA to a “post‑acquisition steady state”?
Applying a multiple to pre‑normalization EBITDA is an error. Review and adjust executive compensation, owner/related‑party items, insurance and major commercial terms, lease/rental treatment (including IFRS 16), and non‑recurring items, and convert to the earnings capacity that is expected to continue post‑deal. Using Normalized EBITDA makes EV/EBITDA comparisons more reflective of reality.
3) Have you brought accounting framework differences onto a common footing?
Differences across IFRS / Ind AS / JGAAP (and other local GAAP)—including leases, impairment, goodwill, revenue recognition, and earn‑out treatment—affect both EBITDA and EV. To preserve comparability, normalize onto a single pro‑forma basis as far as feasible. Also remember that trading multiples (comps) typically reflect minority value, while DCF reflects control value; interpret results accordingly.
4) Is your EV → Equity bridge exact on non‑operating assets and non‑controlling interests (NCI)?
Segregate non‑operating assets (e.g., surplus cash, investment holdings, non‑core real estate) at market value, show tax effects explicitly, and separate them from operating value. For consolidated targets, ensure NCI is reflected correctly and that the acquired perimeter is visualized in value terms via a strict EV→Equity bridge.
5) Have you ensured currency consistency (DCF CF currency = WACC currency)?
A core principle: the currency of cash flows must match the currency of the discount rate. A classic mistake is to source a USD risk‑free rate and apply it to local‑currency cash flows (e.g., THB) without conversion, which creates double counting or omissions of FX and inflation effects. Decide the valuation currency up front and rebuild WACC coherently in that currency.
6) Are you applying nominal vs real consistently?
Choose Nominal CF × Nominal WACC or Real CF × Real WACC, and stick to it consistently. The nominal/real distinction is whether you include inflation effects. In countries with higher inflation (e.g., Vietnam and Indonesia), inflation is a material variable in valuation. As a rule of thumb, we recommend nominal modeling—reflecting inflation transmission in prices, costs, wages, and working capital—because it aligns with how budgets are actually built, and it helps you think concretely about pricing power and timing of pass‑through. Real modeling can be helpful where long‑term inflation is highly uncertain or unstable and you want to explicitly strip it out; if you choose real, apply Real CF × Real WACC consistently.
7) Is your Country Risk Premium (CRP) well‑grounded—and free of double counting?
CRP often runs too high, and when not separated from cash‑flow‑side risks it leads to double counting and over‑discounting. A representative method is to start from the sovereign default spread and apply adjustments based on market volatility ratios. As a rule: do not include in the discount rate risks already embedded in CF expectations. In practical terms, place country (systematic) risk in the denominator (CRP/WACC), and business‑specific, diversifiable risks in numerator scenarios—a separation that helps prevent double counting.
8) Have you separated FX risk into “normal volatility” vs “structural downside”?
Normal (two‑sided) volatility can be handled with currency consistency and sensitivities. But structural, asymmetric downside—e.g., USD‑heavy debt, USD‑linked inputs with local‑currency pricing, or slow pass‑through—should be implemented on the cash‑flow side as probability‑weighted scenarios (shock size × probability × duration). This better captures the time profile of damage than simply “adding to WACC.”
9) Do closing adjustments align with your valuation logic?
Under Completion Accounts, price adjusts at closing for actual Net Debt and Working Capital variances; under a Locked Box, value is fixed at a historical date with leakage restricted. From non‑binding LOI through final bid, ensure terms, formulae, and cut‑off definitions are identical between your model and the SPA. This alignment is essential to avoid mismatches later in the process.
10) Are you presenting the decision using your own investment yardstick, as total return?
Internal decision criteria (e.g., IRR, MOIC, payback) vary by company, so align them before you start pricing a deal. Payback is intuitive but omits residual value (terminal Equity Value), and therefore is insufficient alone. Final decision materials should present flows (dividends/distributions) plus stock (equity at exit) as a total return view.
Summary
1. Valuation is a decision foundation. Enforce the non‑negotiables: currency alignment, nominal/real consistency, EV via FCFF × WACC, and accounting normalization. The most common errors are omissions and double counting. Do not chase infinite precision; emphasize cost‑effective rigor and explainability.
2. Don’t seek a single “true” number. Define a reasonable valuation range from multi‑angle views of growth and risk and negotiate within that range. If discussions move beyond it for good, evidenced reasons, proceed; otherwise, decline or withdraw.
3. Experts add value via current practice and price sense. This checklist supports quick self‑checks, but country/sector multiples and auction dynamics change constantly. From LOI range through final offer, leverage external advisors selectively where fresh market read‑through improves decision quality.