As AI has grabbed headlines and captured popular attention, it raises some intriguing questions for business valuation. In particular, what does the future hold for the role of the human expert in valuation?
This is not a new question. The quest to harness computing power and advanced mathematics to understand financial markets goes back decades. Breakthroughs like the capital asset pricing model and the Black-Scholes option pricing model revolutionized how we analyze financial markets. These tools, combined with rising computing power, fueled a half-century of financial market activity and introduced more analytical rigor to valuation.
With these advancements, some valuation practice areas have become increasingly deterministic, relying on standardized models with measurable inputs. This would appear to point toward a future with a diminished role for human experts in valuation.
However, the art of business valuation remains a deeply human process. As long as markets consist of people, and people remain unpredictable, human expertise will be essential for a reliable valuation.
Markets Are People, and People Are Unpredictable
At their core, financial markets are collections of individuals making decisions to buy or sell assets. While classical economic theory assumes people are rational actors who seek to maximize wealth, behavioral economics reveals a different reality: human decisions are often driven by emotions, intuition, and social cues rather than logic.
This unpredictability of human behavior has profound implications for business valuations. While models and tools are useful, they are no substitute for the intuition and emotional intelligence a skilled expert brings to understanding market dynamics and business value.
Risk Is More Than Numbers
In finance, the relationship between risk and return is fundamental—but quantifying risk is anything but straightforward. Many models rely on volatility as a proxy for risk, but this approach has limitations. For example, it struggles to distinguish between volatility caused by fluctuations in positive returns versus extreme losses, which are inherently more dangerous.
Moreover, real-world data shows that extreme events, often called “black swan events,” occur far more frequently than statistical models predict. These events disproportionately reflect negative market shocks, driven by the rapid spread of fear and panic—a distinctly human phenomenon.
This disconnect between theoretical models and reality underscores the importance of human judgment in interpreting risk and business value. Numbers alone can only tell part of the story.
Why Human Expertise Matters
My work as a valuation expert exposes me to diverse M&A transactions, where decisions of real-world buyers and sellers are often guided by intuition and experience as much as by financial analysis. A comprehensive valuation involves not just crunching numbers but uncovering the story behind them.
One of the most critical steps in the valuation process is the management interview. This conversation reveals key qualitative factors—such as strategy, competitive positioning, leadership dynamics, and organizational culture—that models cannot capture. These insights allow valuation experts to provide a nuanced perspective on a business’s strengths, weaknesses, and opportunities.
Ultimately, a well-rounded valuation delivers more than just a number. It provides actionable insights that business leaders can use to build long-term value. This is where human expertise truly shines: interpreting complexity, understanding context, and guiding decisions in a way no algorithm can replicate.
While AI and automated tools may streamline routine, low-stakes valuations, they cannot replace the depth and breadth of insight that come from a seasoned expert. In an unpredictable world, human judgment remains indispensable for creating valuations that are not only accurate but truly meaningful.
How Adamy Can Help
If you’re facing complex valuation challenges or simply want to uncover new opportunities to build long-term value, our team is here to help. Let’s start a conversation about how expert insight can guide your business toward lasting success.
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