Proper Use of Technical Analysis in M&A Amid Economic Uncertainty

Every negotiation for a transaction comes down to price. Where deal values are large, even a relatively small valuation change can alter deal economics. Precision matters in pricing negotiations. Of the various valuation tools available, Discounted Cash Flow (DCF) analysis has long been viewed as the most theoretically robust. It rests on the principle that an asset's value equals the present value of its future cash flows, a compelling framework under stable economic conditions. But this framework is premised on a philosophical assumption: that the future unfolds as an extension of the past. That assumption may not be true in all transactions.

In today’s environment, defined by high interest rates, persistent inflation, geopolitical upheaval, and supply chain disruptions, DCF inputs have become increasingly uncertain. The method’s reliability in valuations depends on long-term economic forecasts and assumptions about a company’s future growth. While growth projections are inherently uncertain, economic variables like the discount rate, inflation expectations, and risk premia have become far more volatile than historical norms. This uncertainty introduces outsized sensitivity into DCF models, making them prone to large valuation swings from small input changes.

After the financial crisis

Take the post-2008 and post-COVID periods as examples. After the financial crisis, interest rates plunged to historic lows, only to rebound quickly, decoupling from actual market returns and distorting the market risk premium. Fast-forward to 2022: Software-as-a-Service (SaaS) stocks lost roughly 50% of their market value, not due to operational weakness, but because rising interest rates disproportionately impacted businesses whose value was concentrated in far-future cash flows. The DCF input, the discount rate, changed dramatically, and so did the valuation. However, the underlying business fundamentals didn’t.

DCF also struggles in periods of nonlinear recovery. During the early stages of the COVID-19 pandemic, industries like travel and retail experienced sudden, severe cash flow disruptions. Forecasting became speculative at best. For instance, airline valuations hinged almost entirely on how soon normal air travel might resume, six months or two years made all the difference. Differences among analyst EPS forecasts soared to levels even higher than during the global financial crisis. In these cases, DCF outputs became detached from operational reality, mathematically precise but economically meaningless.

Macroeconomic volatility is the new baseline. Trade tensions, geopolitical fragmentation, and increasingly divergent monetary policies have further eroded the reliability of the long-term assumptions baked into DCF. In such environments, valuation methods that rely more on market-based signals, like trading comparables or precedent transactions, play a greater role. These methods, while imperfect, at least reflect current investor sentiment about prevailing market conditions.

That said, DCF remains valuable, not as infallible methodology, but as a rigorous framework that benefits from adaptation. Tools like Monte Carlo simulations, sensitivity analysis, and scenario planning can enhance its utility by framing valuation as a range, not a point estimate. In cross-border deals, this is critical. For instance, a U.S. acquirer would have paid ~11% more for a European target in May 2025 than in January, purely due to exchange rate fluctuations. Static DCF models struggle to accommodate such real-time variables without adjustments.

This is where techniques like “football field” charts become essential. By illustrating valuation ranges across multiple methodologies, DCF, trading multiples, precedent transactions, analysts can stress-test outcomes across scenarios. In volatile markets, more weight may be placed on near-term indicators (e.g., next-twelve-months EBITDA multiples) than on a tenuous 10-year DCF projection.

Yet even this layered technical analysis has limits. Attempting to model every macroeconomic contingency often results in such a wide valuation band that the output becomes decision-irrelevant. In practice, M&A professionals are increasingly accepting this inherent imprecision. Valuation is not a science; it’s a negotiation built on imperfect forecasts. When buyers and sellers disagree on the future, bridging that gap requires deal structures that accommodate divergent views.

Earnouts and contingent value provisions are now common in deal structures, especially in volatile industry sectors. These provisionstie a portion of the purchase price to actual future performance, de-risking overpayment if the seller’s bullish projections don’t materialize. Other tools, such as price-adjustment clauses, currency collars, and macro-index triggers, are also gaining traction, particularly again in cross-border deals. These mechanisms build flexibility into purchase agreements, allowing value to self-correct based on future economic realities.

What emerges is a pragmatic shift: DCF isn’t being discarded, it’s being supplemented and enhanced. Market participants are increasingly treating it as one reference point among many, and structuring deals with built-in cushions to distribute risk more evenly. This reflects a growing recognition that no valuation model can perfectly anticipate the future. As macro conditions continue to defy conventional forecasting, dealmakers must remain nimble, adapting their technical frameworks, but also their contractual strategies.

About CDI Global

CDI Global is highly experienced in helping our clients in both cross-border and cross-industry.

CDI Global’s strategy is our trademark search process to find the right strategic fit between buyers and sellers. CDI Global guides clients throughout the transaction life cycle, in addition to providing project management to ensure transaction moves forward to completion at the right pace. This involves negotiations with parties to the transaction, and often with funding partners as well. Importantly, we project manage acquisitions so our client can focus on running their business, both before, during and after the acquisition. In today’s global economy opportunities exist all over the world, making global expansion inevitable for growing companies. CDI Global has the reach to provide crucial strategic services wherever needed.

By Corey Koh, CDI Global North America