Evolving M&A valuations: rethinking value in a shifting market
November 2025 | TALKINGPOINT | MERGERS & ACQUISITIONS
Financier Worldwide Magazine
November 2025 Issue
FW discusses evolving M&A valuations in a shifting market with Jennifer Van Dalen, Joanne Lupton, Sander Mulder, Matthew Warren and Johannes Post at KPMG.
FW: To what extent are valuation gaps widening between buyers and sellers? Are you seeing a rising need to bridge these valuation gaps – particularly where sellers anchor to pandemic-era pricing, and buyers push for more conservative terms?
Post: Valuation gaps remain a significant challenge in today’s M&A market, with tariffs recently adding to this complication in affected sectors, which are increasing margin uncertainty and prompting more cautious bidding. Many sellers continue to anchor to historically high multiples, while buyers, shaped by macroeconomic pressures such as elevated interest rates and tighter capital conditions, are prioritising disciplined, cash flow accretive deals. Buyers increasingly demand clear value creation through both cost and revenue synergies, shifting negotiations toward fundamentals and credible integration strategies. Proven integration playbooks are commanding premium valuations. Well-capitalised buyers are better positioned to bridge gaps, using balance sheet strength or creative structuring to act decisively when high-quality assets emerge. Ultimately, successful dealmaking requires both parties to adapt, balancing discipline with a shared focus on long-term value.
Warren: Valuation gaps continue to create friction in dealmaking, although signs of narrowing are emerging – especially for high-quality assets that still transact at higher multiples and where sellers are adjusting expectations in response to more conservative buyer sentiment. Pandemic-era pricing still lingers in some sectors, particularly mid-market transactions, but buyers are increasingly focused on fundamentals and downside protection amid economic uncertainty and higher financing costs. To reconcile pricing differences, structured mechanisms such as earn-outs, deferred consideration and minority investments are commonly used. The increased adoption of continuation funds by private equity is also evidence of a need for a longer-term approach to realising asset value. Given this backdrop, independent valuation plays a key role in helping to align expectations, and successful transactions increasingly rely on early engagement, transparent forecasting and flexible structuring.
“Innovative deal structures are gaining traction as buyers and sellers seek flexibility in navigating valuation mismatches.”
FW: What innovative deal structures are emerging to address valuation mismatches, and how are they being received by both buyers and sellers?
Van Dalen: In response to ongoing macroeconomic uncertainty, dealmakers are increasingly adopting structures that help bridge valuation gaps and share risk. These include multi-stage sales with price tranches that allow for price adjustments between closings, and contingent consideration such as earn-outs tied to future performance metrics like revenue or interest, taxes, depreciation and amortisation (EBITDA). Alternative equity instruments, including preferred shares with liquidation preferences or convertible features, are also being used to balance interests. While these structures introduce complexity, they can accelerate deal timelines by shifting some risk from buyer to seller and creating opportunities for mutual benefit. Sellers may ultimately realise greater value over time, while buyers reduce the risk of overpaying for underperforming assets.
Post: Innovative deal structures are gaining traction as buyers and sellers seek flexibility in navigating valuation mismatches. Earn-outs and contingent payments remain popular, aligning seller expectations with post-deal performance. Strategic alternatives such as joint ventures, minority stakes and partnerships offer buyers exposure without full acquisition risk – particularly in emerging or capital-intensive sectors like generative AI and electric vehicle batteries. Other mechanisms include carve-outs, asset swaps, seller financing, deferred consideration and the use of stock as currency to mitigate upfront capital demands and interest rate pressures. Synergy-sharing arrangements, where parties agree to split realised post-closing synergies, are also fostering collaboration. These approaches are generally well-received, offering pragmatic solutions to align interests, manage risk and unlock value in a complex dealmaking environment.
“Although earnings remain stable for many firms, fragile sentiment makes valuations more sensitive to external shocks.”
FW: In what ways are rising interest rates and geopolitical uncertainty influencing enterprise value assessments? Are any specific aspects of the target business attracting greater scrutiny?
Mulder: Rising interest rates and geopolitical tensions are reshaping enterprise value assessments. Higher rates increase the cost of capital, lowering valuations via elevated discount rates and reduced present value of future cash flows. Geopolitical disruptions – such as trade wars – impact supply chains, pricing and investment planning, altering revenue, cost and capital expenditure assumptions. While understanding a company’s business plan and sector dynamics remains essential, today’s environment demands deeper analysis. Focus areas now include international supply chain exposure and revenue and margin resilience under macroeconomic stress. Practitioners are refining traditional valuation models with techniques like expected cash flow modelling, Monte Carlo simulations and extended explicit forecast periods to better capture uncertainty and provide additional insights.
Van Dalen: Persistent economic and geopolitical uncertainty, coupled with fewer capital sources, is increasing risk in enterprise value estimates and slowing deal activity. This unpredictability has led to more cautious dealmaking and intensified scrutiny of business risks. Due diligence now prioritises supply chain resilience, geographic revenue exposure, regulatory risk, liquidity and margin sustainability. The discounted cash flow method remains prevalent, but higher interest rates and risk premiums are compressing valuations.
Lupton: Valuations are being compressed by rising interest rates and amplified risk aversion. This has led to more rigorous due diligence and conservative pricing, with a premium placed on resilient business models. Investors are shifting toward safer assets, reducing appetite for equities and impacting market capitalisation. Asset-heavy sectors like utilities and infrastructure, which rely on leverage, are more sensitive to rate hikes, while low-debt, high-cash-flow sectors like technology are more insulated. Buyers are increasingly focused on downside protection and operational resilience.
Warren: Macroeconomic and geopolitical factors are now central to M&A valuation. Elevated interest rates have increased discount rates, resulting in lower cash flow valuations and prompting closer scrutiny of leverage and cash flow durability. Although earnings remain stable for many firms, fragile sentiment makes valuations more sensitive to external shocks. Geopolitical instability – ranging from regulatory shifts to supply chain disruptions – is driving reassessment of country risk premiums and long-term growth assumptions. For global businesses, this means navigating a more complex and volatile environment, with deeper scrutiny of exposure to interest rate-sensitive sectors, geopolitical hotspots, customer concentration and contractual resilience.
Post: As 2025 closes, M&A continues to be shaped by macro shocks and policy uncertainty. High interest rates are pressuring valuations and steering acquirers toward smaller, strategically aligned deals with near-term value creation. Tight financing conditions are prompting exploration of private credit to optimise capital structures. Geopolitical tensions are adding complexity to cross-border transactions, accelerating the shift from global to regional supply chains. Due diligence now emphasises operational resilience, supply chain stability, environmental, social and governance (ESG) compliance, and predictable cash flows. Buyers favour targets with strong inflation pass-through strategies and clear synergy potential, grounding valuations in tangible, bankable value drivers.
“Strong intangibles can justify premium pricing, while uncertainty around their strength may lead to downward adjustments.”
FW: How are buyers quantifying the value of intangible assets like customer loyalty, proprietary data and brand equity? How is this influencing final deal pricing?
Lupton: Buyers are increasingly applying structured valuation techniques to quantify intangible assets and stress-test their resilience. Intangibles – such as customer loyalty, proprietary data and brand equity – can elevate deal pricing, but only if they demonstrate defensibility, monetisability and durability under regulatory and market pressures. Specific valuation methods are tailored to asset type: multi-period earnings for customer relationships, royalty relief for proprietary data and income approaches for brand equity. Factors like retention rates, switching costs, uniqueness and ESG alignment influence outcomes. These assets are assessed for their ability to sustain competitive advantages and generate durable revenue streams. In practice, businesses with sticky customer bases, unique datasets or strong brand recognition often command valuation premiums, reflected in higher EBITDA multiples or lower discount rates. To manage uncertainty, buyers frequently use earn-outs tied to performance metrics such as retention or data-driven growth.
Mulder: Intangible assets – customer relationships, technology and brand names – often represent a significant portion of enterprise value. Buyers complement traditional business valuation techniques with alternative valuation methods like ‘relief from royalty’ and ‘multi period excess earnings’ to isolate and assess the value of these intangible assets. Conducting a pre-purchase price allocation early in the acquisition process helps clarify how much of the purchase price is attributable to specific intangibles as well as the potential impact of amortisation of these intangibles on reported operating profit and debt covenants. Strong intangibles can justify premium pricing, while uncertainty around their strength may lead to downward adjustments. Accurate assessment is critical to aligning price with value and ensuring transparency in negotiations.
FW: To what extent are environmental, social and governance (ESG) factors being priced into deals today? How are buyers adjusting valuations to account for long-term sustainability risks or opportunities?
Mulder: ESG factors are increasingly influencing deal valuations, with buyers integrating long-term sustainability risks and opportunities into their financial models. This includes assessing the cost of aligning target companies with their own ESG standards – particularly in environmental and governance areas – highlighting ESG’s strategic importance. While ESG data is improving, uncertainty remains, prompting the use of techniques like Monte Carlo simulations and extended forecast periods to better capture long-term impacts. Traditional valuation models still apply, but ESG is now used as an additional lens to enhance analysis. A key challenge is avoiding double counting, in case ESG impacts are reflected both in financial forecasts and discount rates, potentially overstating their effect. Progress in the integration of ESG factors in valuations in general and accounting valuations in particular depends on clearer guidance from regulators, which would support more consistent and robust valuation practices. As ESG continues to shape deal terms and pricing, thoughtful integration is essential to align valuations with long-term value creation.
Lupton: ESG considerations are becoming central to valuations, acting as both risk adjustments and premium drivers depending on sector and deal type. Buyers are adjusting discount rates, cash flow forecasts and EBITDA to reflect sustainability-related risks and opportunities, while expanded due diligence now routinely covers carbon footprints, climate liabilities, supply chain resilience, diversity metrics and governance standards. Scenario analysis and stress testing help quantify exposure to physical and transition risks, and some deals include earn-outs or deferred payments linked to sustainability key performance indicators such as emissions reductions or renewable energy adoption. Companies with strong ESG credentials – like low carbon footprints and inclusive practices – are particularly attractive to institutional investors. Sector-specific impacts include valuation premiums for renewables, sustainable sourcing in consumer sectors, governance in financial services, and green standards in infrastructure and real estate.
“ESG considerations are becoming central to valuations, acting as both risk adjustments and premium drivers depending on sector and deal type.”
FW: How are boards, investors and regulators challenging valuation assumptions? What best practices are emerging to ensure valuation defensibility?
Van Dalen: Stakeholders are applying greater scrutiny to valuation assumptions, demanding transparency and methodological rigour. Reliance on past practices or industry norms is no longer sufficient; valuations must be supported by multiple approaches – such as discounted cash flow, comparable company analysis and precedent transactions – with clearly documented assumptions sourced from market data, forecasts or audited financials. Stress testing and sensitivity analysis are now standard, helping assess the impact of variables like interest rates and geopolitical risks. The emphasis has shifted from simply arriving at a valuation figure to demonstrating how it was derived. Best practices include aligning models with current market conditions, maintaining consistency across scenarios and ensuring valuations can withstand evolving scrutiny.
Warren: Boards, investors and regulators are intensifying their review of valuation inputs, particularly amid heightened market volatility, rising interest rates and geopolitical uncertainty. Assumptions around discount rates, growth projections and terminal values are being challenged when they appear disconnected from macroeconomic realities. Consistency across financial reporting, tax and transaction models is also increasingly expected. Regulatory bodies and valuation standard-setters are also evolving their guidance. For example, the International Private Equity and Venture Capital Guidelines no longer treat the price of recent investment as a default valuation method. The UK’s Financial Conduct Authority has also identified areas for improvement in private market valuations, including conflict of interest management, functional independence, transparency and the use of third-party valuers. Defensible valuations require more than technical accuracy – they must demonstrate credibility, consistency and resilience under scrutiny, with valuation professionals adapting to meet rising expectations.
Lupton: In uncertain economic conditions, stakeholders are closely examining the assumptions behind valuation models. Key areas of focus include the realism of revenue and expense projections, the application of market multiples and discount rates, and alignment with industry benchmarks and macro trends. Inflation, rising costs and supply chain constraints are also under review. To ensure defensibility, boards and investors increasingly request scenario analysis, independent reviews and sensitivity testing. Robust methodologies, well-supported assumptions and clear communication are essential. Adhering to regulatory standards and maintaining transparency help foster trust and ensure valuations can withstand rigorous examination.
“In response to ongoing macroeconomic uncertainty, dealmakers are increasingly adopting structures that help bridge valuation gaps and share risk.”
FW: What role are AI-driven analytics and scenario modelling playing in enhancing valuation accuracy in M&A transactions?
Warren: AI-driven analytics and scenario modelling are playing an increasing role in enhancing valuation consistency and accuracy. These tools enable deal teams to rapidly synthesise large volumes of financial, operational and market data, uncovering patterns and benchmarking insights that support dynamic scenario and sensitivity analysis. This helps stress-test financial and valuation assumptions and quantify potential outcomes more effectively, improving the speed and quality of decision making. However, AI is not without limitations. Outputs must be carefully validated to avoid errors or misinterpretations, and human judgement remains essential – particularly in complex negotiations or when evaluating qualitative factors like leadership capability or cultural fit. Used responsibly, AI augments human expertise by adding scale, speed and analytical depth to valuation processes.
Mulder: AI-powered modelling is increasingly used to refine forecasts and assess valuation risk in uncertain deal environments. By analysing historical performance, industry trends and macroeconomic indicators, AI helps simulate multiple future scenarios, factoring in variables such as market volatility, regulatory shifts and supply chain disruptions. Techniques like Monte Carlo simulations can be applied to quantify the probability of different outcomes, enhancing transparency and confidence in valuation results. While core valuation methodologies remain unchanged, AI adds a dynamic, forward-looking dimension that strengthens analysis and supports better-informed decisions. Its ability to process both structured and unstructured data efficiently makes it particularly valuable in complex or fast-moving transactions.
Jennifer van Dalen leads KPMG’s global and US valuations financial services practices. She collaborates with her international and domestic clients on their pre- and post-deal valuation needs, including the valuation of companies, financial assets and intangible assets. She also specialises in tax valuation. Based in New York City, she has worked on many of the largest financial services deals. She can be contacted on +1 (917) 318 2007 or by email: jvandalen@kpmg.com.
Joanne Lupton leads KPMG’s valuation services in Australia. She has worked in the UK and Australia and has valued businesses across a wide range of sectors, drawing on skills from accounting, finance and valuation to deliver robust advice to corporate and government clients for transaction, financial reporting, tax, asset pricing and dispute purposes. She can be contacted on +61 429 672 965 or by email: jlupton@kpmg.com.au.
Sander Mulder is a corporate finance professional with extensive experience in business valuations. He is specialised in the valuation of companies, intangible assets and financial instruments for strategic, accounting and tax purposes. Based in Amsterdam, he leads the valuation practice of KPMG in The Netherlands. He is also the global lead for the incorporation of environmental, social and governance factors in business valuations. He can be contacted on +31 612 05 49 82 or by email: mulder.sander2@kpmg.nl.
Matthew Warren is the UK head of valuations for KPMG. For 20-plus years, he has developed extensive experience in providing valuation services in a wide range of commercial contexts and across sectors. As well as leading KPMG’s UK valuations practice, he also oversees the UK valuation offering to funds and asset managers, providing valuation advice across asset classes and in the context of M&A, restructuring, intra-fund transfers and portfolio valuations for financial and investor reporting. He can be contacted on +44 (0)7717 301 762 or by email: matthew.warren@kpmg.co.uk.
Johannes Post is KPMG’s global head of valuation services, and has worked in Munich, New York and now Zurich. He specialises in complex business and intangible asset valuations for M&A, joint ventures, restructuring and dispute resolution, as well as advising on portfolio analysis and regulatory compliance valuations. He leads cross-border engagements across industries, supporting clients at every stage of the business lifecycle. He can be contacted on +41 79 575 9633 or by email: jpost@kpmg.com.
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