Why do Mergers and Acquisitions professionals often avoid using discounted-cash-flow analysis (DCF) for valuation?

Mergers and Acquisitions professionals often shy away from discounted cash flow (DCF) analysis for valuation due to several challenges associated with its application. One significant reason is that DCF requires extensive data, including detailed financial projections, appropriate discount rates, and a clear understanding of the company's future cash flows. Collecting and accurately forecasting this data can be time-consuming and complicated, particularly for companies with uncertain or volatile revenue streams.

Additionally, DCF analysis can be quite complex. It involves nuanced calculations and a series of assumptions that can significantly affect the resulting valuation. Such complexity can deter professionals from relying heavily on DCF, especially when the assumptions may not hold true in a dynamic market environment.

Another critical aspect is that DCF analysis aims to estimate the present value of a company based on its projected future cash flows. However, it can sometimes fail to adequately account for future performance nuances or changes in market conditions that might impact those cash flows. Given that M&A professionals often need to make quick decisions in environments where information changes rapidly, the rigid structure of DCF can be a limitation.

When combined, these factors contribute to the overall hesitation in using DCF as a primary valuation tool in M&A scenarios. Therefore, the notion that professionals often avoid D