It is necessary to use two different methods to evaluate a company because they are based on distinct philosophies and meet complementary objectives. Neither is superior to the other; they simply offer two perspectives necessary to frame the value of an asset.

Here are the main reasons for this duality:

1. Observation vs. Construction (The Philosophical Approach)

The two methods do not process information in the same way:

• The Multiple Method (Analogical Approach): This consists of observing the “average opinion of the market”. It does not attempt to explain intrinsic value, but it does note the price that investors are willing to pay for comparable assets at a given time.
• The DCF method (Analytical Approach): It consists of building the investor’s opinion. It is based on the company’s fundamental ability to generate future cash flows (Free Cash Flows) discounted at the cost of capital. This is a method of explanation.

2. Minority vs. Majority (The Perspective of Power)

The methods reflect different levels of power over the company’s strategy:

• Minority Perspective (Multiples): This method is often associated with the valuation of minority shareholders who have no influence on management. They rely on the market consensus (the stock price) which reflects management as it is (“as is”).
• Majority Perspective (DCF): This method corresponds to the vision of a controlling shareholder (acquirer). By taking control, the acquirer can transform the business, implement synergies and change future flows. This is why the price of a DCF is often higher than the stock market price, justifying a “control premium”.

3. Practical use and complementarity

• For an IPO: Multiples are used  to determine a realistic price range that will be accepted by the market, based on the consensus for comparable companies.
• For an industrial acquisition: DCF is used  to model the impact of the integration of the target into the buyer’s strategy (synergies, restructuring). The multiples are then only used to quickly check the positioning of the target in relation to the sector.

In summary, the price of a transaction is not a scientific truth but an agreement between a seller and a buyer who often have different opinions on the value. Having two methods allows you to materialize these different opinions: that of the market (what it is worth for everyone) and that of the investor (what it is specifically worth to me).