Module II· Special Situations ValuationAdvanced
Question
How do you defend a special-situations valuation in an interview when an MD asks 'How confident are you in this value?'
Answer
A structured answer:
- 'We use three independent methodologies — a going-concern stressed DCF, a liquidation floor, and comparable distressed transactions — and triangulate the range.'
- 'Going concern gives $280m at a 50% recovery probability, $150m at a 30% slow-recovery, and a $180m liquidation floor — probability-weighted EV = $220m.'
- 'Sensitivity: ±10% in the recovery probability swings EV by ±$50m; ±200 bps in the distress premium by ±$30m.'
- 'Comparable distressed transactions: similar asset profiles traded at 4–6x normalized EBITDA in 2020–2023 — we're at 5x, mid-range.'
- 'Critical path: the litigation outcome is the main risk factor — we show a pre-/post-litigation valuation bridge.'
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Pitch tip
a top-quartile answer signals: (a) you use a multi-method approach, (b) you show explicit sensitivities, (c) you reference market comparables, (d) you identify the main risk factor. A weak answer: 'we calculated a value of X.' MDs hate point estimates without a range.