How to value company in M&A transactions

Basically, this methods frequently being used:

1. Deal Comparable
2. Firm Comparable
3. Discounted Cash Flow (using WACC and Adjusted Present Value)

Deal Comparable: use recent M&A deals in target's industry; calculate comparable ratios such as: Price Earnings (P/E) ratio, revenue based multiple, cash-flow multiple, book-value based multiple.
Disadvantages:  simple one dimensional view of valuation (a single denominator: sales, EBIDTA); small sample size, deals in the past would not be the same concurrence with the present, based on outdated valuations and time mismatch.

Firm Comparable: compare between similar (peer) firms to target; determined a range of valuation based on appropriate multiples and placed the target within the range.
Disadvantage: simple one dimensional valuation; does not incorporate synergies and control benefits; does not incorporate shareholders resistance; subject to creative accounting.

Discounted Cash Flow: more complex valuation, but could incorporate synergies and control benefits and M&A dynamics; may avoid accounting manipulations.
Requirements:

• needs adjustments for financing effects (ex: tax shield. finance vs operating lease)
• adjusted annual free cash flow by adjusted after tax WACC (be careful: please handle tax adjustments to discount rates, might be incorrect substitutes)
• adjusted annual free cash flow by APV (adjusted present value) -- First, value the firm assuming all equity financing (discounted at the un-levered cost of equity) and then add on the present value of the tax shield. Note: APV will give different valuation instead of WACC, however APV is more suitable for highly levered situations.