Valuation is not a truth. It is a conviction.

A few weeks ago, I joined Javier in a financial modelling and valuation programme delivered by IEB for the M&A teams at Exus Renewables. An experience I shared on LinkedIn, and one that left me with a conviction I would like to explore further here.

The programme combined financial modelling fundamentals with an immersive acquisition simulation. Each team analysed renewable energy projects, built valuation models and decided which assets to acquire, and at what price. I played the role of the seller: I had completed my own analysis beforehand, before receiving the teams' offers.

What became clear from the outset: buyers and seller had not used the same assumptions. And so, we had not arrived at the same values.

This was not a mistake. It was not a lack of rigour. It was exactly what was supposed to happen.

A separate exercise confirmed this even more sharply. This time, every team analysed the same project, with the same available information. And yet each team arrived at a different value. Same asset, same data, different assumptions, different prices.

What a financial model does, and what it does not

A financial model does not produce value.

It translates assumptions into numbers.

This distinction seems simple, but its implications run deep. Because if the model is only the translation, then the real question is not "is the model correct?" It is: "are the assumptions behind it defensible?"

In renewable energy, the variables that make the difference are well known: expected energy production, CAPEX phasing, permitting timeline, grid connection conditions, financing structure, development schedule. These are data points, but data points that all rest on a reading of the future. And two competent teams, working with the same available information, can read that future differently.

One will see a permitting delay risk where the other sees a realistic timeline. One will model a conservative production scenario where the other factors in optimal historical conditions. One will apply a slightly higher financing cost based on a different reading of the rate environment.

These differences in judgement produce different prices. And it is not the model that decides: it is the judgement of the team that built it.

Valuation as an act of conviction

What these exercises made visible is something M&A practitioners know intuitively but rarely state this clearly: a valuation is not an absolute truth. It is a conviction you need to be able to defend.

The final simulation illustrated this perfectly. Teams were not just presenting their model. They were presenting their investment thesis before an Investment Committee made up of Exus' Investments and FP&A leadership. And every assumption was challenged. Not the Excel file. The reasoning behind it.

This is exactly what happens in a real transaction.

A buyer who walks into an investment committee with a solid model but a shallow understanding of the business they are valuing will not survive the first round of questions. Conversely, a buyer who deeply understands the sector, the project-specific risks and the value creation levers can defend more ambitious assumptions, and justify them.

The key competence is therefore not building the right model. It is understanding the business deeply enough to know which assumptions are defensible, which are fragile, and which are conscious bets.

What the price gap actually reveals

In the simulation, the gap between my valuations as the seller and the buying teams' offers was significant, and that is where things get interesting.

In a real transaction, a large gap between the seller's price and the buyer's price is not necessarily a problem to be solved.

It is first and foremost a signal to be read. If two competent parties, analysing the same asset with the same information, arrive at very different prices, it means their fundamental assumptions diverge: on risk, on the future of the market, on what that asset is worth within their respective portfolios.

The role of the investment committee is precisely to ask the right questions to understand how far a conviction can be defended. Not to converge at any cost, but to verify that the proposed price rests on realistic assumptions and a solid understanding of the business.

And sometimes, the conclusion is that the deal should not happen. This is the idea that people often avoid stating clearly. Not because the asset is bad, but because the gap between the seller's expectations and what the buyer can reasonably defend is too wide to bridge without distorting the assumptions.

In a context where everyone wants the deal to close, the teams who worked on it, the advisors, sometimes the management, reaching that conclusion takes courage.

And yet it is one of the most strategic decisions an investment committee can make: recognising that a good opportunity, acquired at the wrong price, is no longer a good opportunity.

This article is part of a series on the strategic, organisational and human dimensions of mergers and acquisitions.

Previous article: M&A: what if finance were not enough?

Next article: Before being a buyer or a seller, a company is first a strategist.

You can also find my perspective on this topic in my LinkedIn article.