Valuation in M&A Transactions — CA. Chander Sawhney at the Business Valuation Summit, Delhi 2018
Our Founder, CA. Chander Sawhney, led the session on Valuation in M&A Transactions at the Business Valuation Summit held in New Delhi, organised in association with the International Valuation Standards Council (IVSC) and the I-Deals Network. The discussion moved from the first principles of value creation through to control premiums, buyer and seller psychology, due diligence adjustments, and the regulatory overlay that shapes what a deal can actually be priced at.
CA. Chander Sawhney
Founder @ Transique — IPO Advisory, Equity & Debt Fund Raising, Business Valuations, M&A Deals and Transaction Advisory. Member: ICAI Valuation Committee. Ex Member: Central Government (MCA) Valuation Committee, ASSOCHAM M&A Council, ICAI VSB.
The session opened by anchoring M&A valuation to the question the morning sessions had already raised: what is the valuation for? Every subsequent judgement call in a transaction follows from the answer.
Valuation Depends on Purpose — and Purpose Keeps Changing
00:00Sawhney set the frame by returning to a point established earlier in the day: valuation depends on the purpose it is being carried out for. Change the purpose and the number changes with it. In an M&A context this is not an academic distinction — the same business carries a different value to a financial investor, a strategic acquirer and a minority shareholder, and the discussion was deliberately framed around value creation rather than around arriving at a single figure.
The Cardinal Principle: Returns Must Beat the Cost of Capital
01:03He described as a cardinal principle of valuation the test that a business must earn a return above its weighted average cost of capital (WACC). So long as a company is making more money than the cost of the capital deployed in it, it is genuinely creating value. It is a simple test, but one that cuts through a great deal of accounting-level profitability discussion and gives both sides of a transaction a common reference point.
The Agenda: Control Premium, Synergy and Due Diligence Adjustments
01:23Turning specifically to M&A, he laid out the three areas where transaction valuation departs most sharply from routine valuation work: control premium, synergy, and the due diligence adjustments that surface late in a deal. His observation was that valuation methodology itself is not very different across contexts — the divergence comes from judgement, and in a transaction the judgement calls cluster around exactly these three areas.
The Seller’s Number Is Rarely the Market’s Number
02:38A seller who has run a business for years will inevitably carry a figure in mind that sits well above what the market will support — the value reflects everything they have put into the business, not what a buyer is acquiring. Sawhney’s practical point was directed at advisers: the value conversation with the seller has to happen before going to market, not after. Where advisers skip it, the promoter arrives at the negotiating table in the wrong frame of mind and a price acceptable to both sides becomes far harder to reach.
The Private Equity Lens Differs from the Strategic Lens
02:05Putting the question to the panel, he drew out how a private equity investor values a business differently from a strategic acquirer. The PE investor is fundamentally a financial investor with an exit horizon, assessing the business model and the strength of the company as a portfolio holding, and asking where the company will be two years out. The strategic buyer is pricing something else entirely — and the two arrive at different numbers for the same asset.
Levels of Value: Minority, Control and Strategic
05:15He set out the levels-of-value framework that underpins transaction pricing: value at the minority or retail-investor level, value at the private equity level, and value at the 100% control or strategic level. A private equity investor taking a 20–25% stake is not buying the same thing as an acquirer taking control of the business, and the price per share reflects that. Recognising which level a valuation is being prepared at prevents a great deal of confusion later.
What Justifies a Control Premium
06:54The panel worked through the control premium as a practical rather than a theoretical construct — what percentage stake actually confers control, what the acquirer gains by holding it, and how that translates into the multiple paid. The premium is not a courtesy; it is payment for the ability to direct the business, its cash flows and its strategy, and it has to be defensible on those terms.
Sawhney moved from framework to practice, drawing on M&A transactions he has closed across domestic and cross-border situations to show where the formula-based valuation and the transacted price parted company.
Value Is a Function of the Business and Its Future
17:36Introducing the practical segment, he noted that across the deals he has closed in the M&A space, both domestic and international, the managed valuation formula and the transacted outcome were routinely different. His framing was that value is a function of the business and of its future — which means the internal assessment of the management and the buyer’s own strategy end up mattering as much as the model.
Case 1 — The Foreign Acquirer Who Paid to Remove a Competitor
18:37An international company was expanding into India in a services-level business that would normally transact at a conventional EBITDA multiple. A domestic Indian buyer would have paid that multiple. The international acquirer paid substantially more — part of it a control premium, and part of it, in Sawhney’s words, money paid to remove the competition. The promoter accepted a non-compete of roughly four to five years as part of the consideration. The point he drew out: what the buyer is buying is not always only the business.
Case 2 — The India Platform, Priced by a UK Buyer
19:26Representing an Indian company in an acquisition involving a UK counterparty, Sawhney found the UK side trading at a higher multiple than the Indian business. The strategic logic ran both ways: the UK company wanted entry into India, and the Indian company offered a ready platform. That platform in turn supported a higher valuation for the combined entity, made the group attractive to UK investors, and opened a possible listing route in the United Kingdom. The platform itself was the value driver — not the earnings it generated on a standalone basis.
Geography, Competition and Management as Value Drivers
20:36Generalising from the cases, he identified what actually moves the number in a strategic transaction: the geography being entered, the competition being neutralised, and the management being acquired. Why a buyer wants the Philippines, Taiwan, Singapore, the UK or Saudi Arabia is a strategic question, not an accounting one — but the answer creates real, payable value. The multiple follows the strategy rather than the other way round.
A Good Business Today May Not Be One in Five Years
21:05Summing up where the panel converged, Sawhney returned to purpose — and added a caution about time. Industries are changing fast, with regulatory shifts and technology shifts arriving in quick succession. A business that looks strong today may not be a good business five years from now, and a valuation that ignores that trajectory is measuring the wrong thing.
Sawhney then steered the panel deliberately away from the commercial side, on the view that the regulatory side of a transaction is where value is most often quietly destroyed.
High-Value Transactions Are Heavily Regulated — Asymmetrically So
22:08The panel noted that regulation scales with deal value, and that it is not symmetric. Moving funds out of India for an overseas acquisition attracts materially more scrutiny than bringing overseas investment into India, and additional layers of commercial clearance come into play on the outbound side. Restrictions also bite specifically on strategic investments and on arrangements that confer control.
Indirect Transfer and the Tax Exposure Buyers Miss
22:47A recurring exposure raised in the session: where an international company holds assets that are substantively Indian, the transaction can be brought within the Indian income tax net through indirect transfer provisions. Deals structured offshore on the assumption that they sit outside Indian tax have found otherwise, and the resulting liability is rarely priced into the negotiated value.
Labour Law and Culture — Why a French Target Priced Differently
23:04Illustrating how non-financial factors reduce value, he described a situation involving the acquisition of a company in France, where labour law and the weight of court judgements on employment matters were decisive. The concern was practical: Indian management styles do not always transfer, and labour relations can determine whether the acquired business functions at all. In such cases the honest response is to reduce the valuation rather than assume the difficulty away.
CCI Clearance on the Domestic Side
23:42For domestic transactions, the panel pointed to Competition Commission of India regulations and the directions the CCI has issued across a range of transaction structures and business combinations. Where clearance is conditional, the conditions themselves change what the acquirer ends up owning — and therefore what it should be prepared to pay.
For Listed Companies, All Approaches Must Be Addressed
24:58On the listed-company side, he described the prescribed reporting discipline: the valuer must address every approach — asset, income and market — and where an approach is not relied upon, must give reasons. His candid observation on Indian regulatory practice was that the question asked is almost always about the value itself rather than about the reasoning behind the valuation opinion, which places the burden squarely on the valuer to document their judgement.
Due Diligence Closes the Information Gap
07:22Sawhney was direct about the limits of a pre-diligence valuation: in practice it is very difficult to obtain the full picture, and there is information that simply is not available to the merchant banker at the outset. Due diligence exists to close that gap, and the findings feed back into price discovery rather than sitting in a separate workstream.
Four Streams of Findings — and Why They Should Not Wait
30:03Diligence findings, he noted, arrive across accounting and finance, tax, IT and operations, and each stream has a fair chance of moving the price. His advice to advisers was procedural but consequential: update the client as findings emerge rather than at the end. Waiting until the final report is delivered leaves the client discovering a repriced transaction weeks after the point at which they could have acted on it.
Case 3 — When the Value Sits With One Customer
31:17In a defence-sector transaction, diligence established that almost the entire value of the target was coming from a single customer relationship — and that the relationship belonged to the promoter personally rather than to the company. That put the buyer in the position of having to take a considered call on customer concentration and on whether the relationship survives the promoter’s exit. It is precisely the kind of finding that no financial model surfaces on its own.
Under-Provided Employee Liabilities
32:03A frequently recurring adjustment, in his experience, is employee-related liabilities that have been under-provided in the books. These are unglamorous findings, but they are real obligations transferring to the acquirer, and they belong in the adjusted valuation rather than in a footnote.
Minority Protection Is Now a Live Issue
33:09Closing on a theme he called a very significant issue of the day, Sawhney addressed the position of minority shareholders in companies undergoing transactions. Valuation reports are now available in the public domain and can be downloaded from company websites, which has raised the standard of scrutiny considerably — and, in his view, means minority shareholders need to engage with these documents far more regularly than they historically have.
Going Concern Value Versus Liquidation Value
34:01He drew the distinction that decides outcomes in distressed situations: whether a claim is settled on a going concern basis or a liquidation basis. Where the applicable framework directs that operational creditors receive liquidation value rather than going concern value, the basis of valuation — not the valuer’s skill — determines the recovery.
Supplier Concentration as a Value Risk
34:40The final exchange turned to the supply side — supplier relationships, restrictions embedded in supply arrangements, and dependence within the supply chain for products and services. The symmetry with customer concentration is exact: a business dependent on a single supplier carries a risk the multiple has to reflect.
What the Session Covered
- Valuation follows purpose — the same business is worth different amounts to a financial investor, a strategic acquirer and a minority shareholder.
- A business creates value only when its returns exceed its weighted average cost of capital.
- Control premium, synergy and due diligence adjustments are where M&A valuation diverges most from routine valuation work.
- The value conversation with a selling promoter must happen before going to market, not during negotiation.
- Strategic acquirers pay for geography, for removing competition and for a market-entry platform — none of which a standalone earnings model captures.
- Outbound Indian investment faces heavier regulatory scrutiny than inbound; indirect transfer taxation and CCI clearance both bear on deal value.
- Diligence findings across finance, tax, IT and operations should be shared with the client as they emerge, not at the end.
- Customer concentration, supplier dependence and under-provided employee liabilities are the adjustments that most often reprice a transaction.
“Valuation in M&A Transactions” | Business Valuation Summit, New Delhi — in association with IVSC & I-Deals Network
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At Transique Corporate Advisors, we specialise in guiding business owners, promoters, and CFOs through valuation and the SME IPO journey — from valuation to listing and beyond.
Founder@Transique-IPO Advisory, Equity & Debt Fund Raising, Biz Valuations, M&A Deals,
Transaction Advisory. Member: ICAI Valn Comm.,
Ex Member: Central Govt. (MCA) Valuation Committee, ASSOCHAM M&A Council, ICAI VSB.