Module II· Special Situations ValuationBasic
Question
What are special situations, and what valuation challenges do they create?
Answer
Definition
Companies in unusual circumstances where standard methods (DCF, comps) break down.
Types
- Distressed/bankruptcy: negative cash flows, high default probability
- Restructuring: mid-transition from old to new
- Spin-offs/carve-outs: no stand-alone track record
- Holding companies: complex ownership structure, SOTP required
- High-litigation-risk: pending lawsuits
- Regulatory cases: pre-approval pharma, environmental cleanup
Problem
A standard DCF assumes a going concern, which often does not hold. Comps frequently don't exist.
Toolkit
probabilistic scenarios, liquidation value, real-options models, SOTP.