Valuation is one of the most talked about, yet at the same time, also one of the least understood aspects of the mergers and acquisitions (M&A) process. Although it often comes up early in conversations, many misunderstandings only surface later, when the discussion becomes more serious with potential buyers.
You have probably heard comments like:
“My company generates strong revenue, so it should be worth more.”
“Company X was sold at this EBITDA multiple, so my company should be valued the same way.”
“This buyer offers me a higher value, why is your valuation lower?”
When SME owners think about valuation, they often have assumptions that they feel reasonable to them. However, the real challenge is that what makes sense from a seller’s perspective might not always align with how buyer actually assess value.
In a previous blog, we discussed the three common valuation methods used in M&A to assess a company’s value. These frameworks are important as they provide a structured starting point for the negotiations. But, in real transactions, valuation is also shaped by how different buyers view the same business – usually depending on their strategy, risk appetite, and expectations for the future – not just by formulas or historical performance.
This gap in perspective is often where misunderstandings begin. Sellers may feel their business is being undervalued, while buyers believe they are simply just being cautious. This gap becomes even more pronounced when it comes to cross-border M&A, where overseas buyers may focus on factors that local owners often take for granted.
For example, a Japanese company looking to expand into Malaysia may place greater emphasis on long-term stability, governance standards, management continuity, customer concentration, and downside protection. A local buyer, on the other hand, may focus more on near-term earnings, operational synergies, cost savings, or competitive positioning. This is why business owners sometimes hear conflicting feedback, such as “Your business should be worth a high multiple,” versus, “It really depends on your cash flow and customer concentration.”
As a result, assumptions that feel “true” to sellers can quickly be challenged once negotiations begin. Before even getting fixated on the numbers, it is helpful to first clear up these common misconceptions and understand why they may not always hold true in practice.
Common Misconceptions About Business Valuation
1. “Valuation is mainly based on revenue.”
This is one of the most common misunderstandings. In real M&A discussions, buyers usually care far more about profitability and cash flow than revenue alone. A business can have strong top-line sales but still be valued lower if margins are thin, costs are unstable, or too much cash is tied up in inventory and receivables. Revenue matters, but it is typically the quality and sustainability of earnings, and how reliably those earnings turn into cash, that truly drives value. This is particularly relevant in cross-border transactions, where overseas buyers may be less familiar with local market conditions and therefore rely more heavily on cash flow visibility to assess risk.
2. “My business is worth what my competitor sold for.”
Even if two companies are in the same industry, valuation can differ significantly due to factors like customer concentration, recurring revenue, gross margin profile, growth rate, management team, and business dependence on the owner. What looks like a “similar deal” on the surface may not be comparable once buyers dig deeper. In cross-border M&A, this gap can widen further, as market multiples that are common in one country may not translate directly to another due to differences in return expectations, capital structures, or economic conditions. This is why market talk about multiples can be misleading without proper context.
3. “Valuation is a fixed number.”
In practice, valuation is usually a range, not a single figure. The final price can move depending on deal structure, for example, how much is paid upfront versus later, whether earn-outs are involved, what working capital adjustments apply, and what warranties or indemnities are required. This flexibility becomes even more important in cross-border deals, where buyers and sellers may initially be far apart on risk perception. Structuring tools are often used to bridge valuation gaps and align expectations.
4. “Only the EBITDA multiple matters.”
Multiples are common because they are easy to understand, but they are not the only lens. Buyers often cross-check value using different valuation methods, such as discounted cash flow (DCF) or asset-based approaches, especially when earnings are volatile, the business is asset-heavy, or the company is at a turning point. Even within an EBITDA multiple approach, the real discussion is usually about what EBITDA should look like after normalization and what multiple fairly reflects the risk profile.
5. “Valuation equals price.”
Valuation is an estimate of what the business is worth economically. Price is negotiated and it depends on buyer competition, urgency, strategic fit, and confidence in the numbers. This is also where a structured advisory process can make a difference. Advisors such as Nihon M&A Center Malaysia help shape a credible valuation narrative, prepare the company for due diligence, and manage a process that builds buyer confidence.
Valuation is not a fixed conclusion about what your business “should” be worth, instead, it reflects how risk and future potential are viewed during negotiations. The misconceptions discussed above are not mistakes – they are natural assumptions formed by SME owners based on years of effort, growth, relationships, and day-to-day operations. Buyers, however, evaluate the same business differently, focusing on risk, returns, and long-term certainty.
This difference in perspective is especially important in cross-border M&A, where buyers may apply standards and expectations that feel unfamiliar to local SME owners. Without recognizing this early, valuation discussions can easily become frustrating or stall altogether. This is where the right guidance makes a difference. Nihon M&A Center Malaysia plays an advisory role by serving as an intermediary to facilitate clear and constructive communication between both parties, helping sellers understand how buyers think while also protecting sellers’ interests, preparing their businesses for scrutiny, and positioning value in a way that is both fair and achievable.
When valuation is approached as a process of aligning expectations between both parties, rather than proving the “right” point, negotiations would naturally become more productive, creating better outcomes that are both realistic and successful.
Contact us today at Nihon M&A Center Malaysia to gain clarity on what your business is truly worth and let us be your trusted advisor throughout the valuation and M&A process.