Valuation used to feel like a destination. Today, it functions more like a map.
For CFOs, investors, and business owners in the middle market, transactions are still happening. However, many deals are being negotiated through structure and risk allocation, as well as through a headline multiple. Earn‑outs, rollover equity, seller notes, and other structured elements are now common tools for aligning expectations in a time when forecasts can be more fragile and outcomes can be harder to predict.
In that environment, valuation buyers are no longer focused solely on “What’s the value?” and are asking, “How was the value developed, and what will consideration look like?”
This guide outlines how valuation has evolved, where deal structure and risk assumptions now matter most, and what investors and CFOs can do to strengthen outcomes before a transaction, reporting deadline, or review process approaches.
Why Do Valuations Feel Different Today?
Several factors have converged to impact valuation:
- Interest rates remain elevated relative to the last decade, increasing sensitivity to discount rate assumptions.
- Tariff uncertainty and supply chain disruption have introduced variability that historical performance alone does not explain.
- Technology, particularly artificial intelligence (AI)-driven change, has reshaped growth narratives while introducing execution and governance questions.
- Disruptions to the global economy and supply chains from the conflicts in the Middle East are changing frequently and the effects on cash flow, i.e., valuation, are continually evolving on a sector-by-sector basis.
As a result, valuation now sits at the intersection of finance, risk management, and deal design rather than living as a standalone technical exercise.
What Is a Defensibility Framework for Valuation Buyers?
A defensible valuation reflects how well the work holds together when reviewed by third parties who did not participate in the transaction.
One way to consider defensibility is to look at these five elements as links in a chain:
- Inputs: Forecasts, historical normalization, market data, and transaction terms should reflect observable information where available, with clear explanations when judgment is needed.
- Methods: Selected valuation approaches and models should align with how other market participants would evaluate similar assets, including how contingent or structured features are treated.
- Governance: Key assumptions, such as discount rates and risk adjustments, should follow a repeatable process rather than being selected ad hoc for a specific outcome.
- Documentation: The rationale behind assumptions matters. Again, clear support can reduce friction when conclusions are evaluated later by auditors, investors, or counterparties.
- Sensitivities: Valuations should explain where results are most exposed to change and how alternative scenarios affect value.
When one or more of these elements is weak, valuation conclusions can become harder to support under review, even if the headline number felt reasonable during negotiations.
How Can Deal Structure Change Value?
As buyers and sellers interpret future performance differently, deal structure often serves as the mechanism for closing valuation gaps. From a valuation perspective, these features are not secondary. They can materially alter economics and risk exposure.
Here are common structures and details about why each matters:
- Earn‑outs: Earn‑outs introduce contingent consideration tied to post-close performance. Value depends on execution, measurement definitions, timing, and probability of achievement. Poorly defined metrics are a frequent source of dispute.
- Seller notes: Seller financing shifts value realization over time and introduces credit risk. Repayment terms, subordination, and interest assumptions can change effective economics.
- Rollover equity: When sellers retain equity, they preserve upside but extend exposure to governance, minority rights, and future liquidity constraints.
- Structured equity: Preferred returns, caps, floors, and triggers can shift outcomes meaningfully relative to common equity, especially in downside scenarios.
Valuations that give limited attention to structure risk overstate certainty. Investors and executives should expect valuation work to explain how each element functions, why assumptions were selected, and how outcomes differ under alternative scenarios.
“In many transactions today, the economics are shaped by structure as much as by price.”
Why Do Risk Assumptions Draw More Scrutiny?
Risk adjustments and discount rates have always mattered. What has changed is how closely they are examined.
In more volatile markets, reviewers often focus on whether assumptions are governed and supportable rather than on how aggressive they are. A credible valuation typically demonstrates:
- Consistent framework for developing discount rates across engagements
- Clear connection between identified risks and incremental adjustments
- Documentation explaining why adjustments were warranted and how they were sized
- Sensitivity analysis showing where value is most exposed to assumption changes
This discipline matters regardless of use case. Whether the valuation supports a transaction, purchase accounting, portfolio marks, or tax planning, loosely supported risk assumptions can create downstream challenges.
How Do Sector Context & Uncertainty Shape Value Discussions?
Historical performance remains relevant, but it is not always sufficient on its own. Two sources of uncertainty illustrate why forward-looking analysis now receives greater emphasis.
- Tariffs and supply chain exposure: Companies with international sourcing, concentrated suppliers, or narrow margin profiles may face volatility not always visible in historical results. Scenario-based analysis informed by discussions with executive management helps clarify how policy changes or sourcing shifts can affect cash flows and working capital.
- AI-driven disruption: For some organizations, AI enhances scalability or efficiency. For others, it introduces pricing pressure or obsolescence risk. Valuation discussions increasingly focus on whether projected benefits are realistic, how quickly they may materialize, and how sensitive value is to timing and execution.
Investors and executives do not need perfect forecasts. They do need transparency around what is known, what is unknown, and how uncertainty was reflected in the valuation analysis.
How Does Valuation Support More Than a Single Outcome?
A valuation conclusion rarely lives in isolation. It may influence or intersect with:
- Transaction negotiations and structuring decisions
- Tax planning and compliance
- Dispute preparation or resolution
Engaging valuation support with awareness of this broader life cycle increases the robustness of the analysis. Providers with experience across multiple valuation contexts are often better positioned to anticipate critical issues and assumptions.
What Are Practical Questions to Ask Valuation Providers?
When assessing valuation support, asking the right questions early can help surface meaningful differences in approach.
- Non-cash consideration capability: How do you value earn‑outs, seller notes, rollover equity, and other structured elements, and how are assumptions documented?
- Discount rate governance: What process is used to develop equity risk premiums and company-specific adjustments, and how are those decisions supported?
- Sector pattern recognition: How does your approach change for service versus product businesses, tariff-exposed companies, or sectors facing technology disruption?
- Tooling and review controls: What technology and quality controls are in place to reduce errors and support documentation and evaluation needs?
These questions focus on judgment and methodology rather than just the deliverables.
What Does This Mean for Those Commissioning Valuations Now?
Preparation and expectation setting can help influence valuation outcomes. If a valuation is likely in the near- or midterm, key considerations and actions include:
- Clarifying purpose and timing: Transaction, reporting, tax, or dispute readiness each drives different standards.
- Identifying how structure affects value: Deal terms can meaningfully change economics and retained risk. Identify deal terms early and understand how contingent elements can affect both economics and risk.
- Pressure testing forecasts: Develop base, downside, and upside cases and document key drivers.
- Preparing for continued scrutiny: Even with insurance or negotiated deals, support is often reviewed later. Organize diligence support, including normalized earnings before interest, taxes, depreciation, and amortization (EBITDA) analysis and explanations for nonrecurring items.
- Scrutinizing risk assumptions: Rates, tariffs, and market sentiment can drive deeper questions. Develop a concise risk narrative that documents known uncertainties and mitigation strategies.
- Assessing governance provisions: Minority rights, consent requirements, and exit mechanics can affect future liquidity and influence future value.
- Substantiating AI narratives with credible execution: Execution discipline matters as much as strategy.
- Investigating sector dynamics shaping underwriting: Exposure can vary by industry, scale, and supply chain profile.
This combined approach can help align valuation assumptions with transaction realities and support defensibility if conclusions are revisited in diligence, reporting, or dispute contexts.
How Forvis Mazars Can Help
Valuation has evolved from a static exercise into a strategic support tool that helps inform decisions, negotiations, and stakeholder communication.
The Valuation team at Forvis Mazars works with investors, boards of directors, and finance leaders to help develop valuation analyses that reflect deal structure, sector context, and uncertainty, while maintaining the documentation and discipline reviewers expect.
If you’re planning a transaction, preparing for financial reporting, or evaluating an investment, connect with our professionals to discuss an approach aligned to your objectives and circumstances.