When valuing a company, it’s tempting to focus on the business itself – eg. its revenues, its margins, its growth plans
Yet in many sectors, you cannot look at this in isolation.
A more relevant question is often: What is happening to the sector around it?
I.e. How is it evolving structurally? How are demand patterns shifting?
This is especially true in sectors undergoing structural change — for instance due to sustainability dynamics — where outcomes can develop in different ways.
In practice, valuation is not just a forecast — it is a view on the future of a sector.
These differences only become visible when you explicitly consider sectoral scenarios in your valuation.
Energy as an example
The energy sector is a strong illustration of this dynamic.
Company performance is heavily influenced by sectoral drivers such as:
- power price volatility
- grid constraints
- the pace of the energy transition
The case: FlexPower Services GmbH
For certain businesses, these factors can materially influence valuation outcomes.
To bring this to life, consider a fictional German SME: FlexPower Services GmbH.
FlexPower is active in:
- battery optimisation
- behind-the-meter flexibility
- hybrid energy systems
- backup power
It generates:
- €36m revenue
- €5m EBITDA
- €15m total assets
We can segment the business into three components:
| Segment | What it represents | % revenues |
| Clean energy | Software-driven optimisation and battery flexibility | 39% |
| Transition energy | Hybrid systems combining new and legacy | 39% |
| Legacy energy | Diesel backup and standby power | 22% |
Each of these parts behaves like a mini-company.
They respond differently depending on how the energy system evolves.
Sector drivers to consider
For this type of business, three external drivers dominate valuation:
1. Speed of the energy transition
Faster transition shifts value toward scalable “Clean” activities
2. Power price volatility
More volatility increases optimisation and spread capture opportunities
3. Grid congestion
More congestion increases the value of flexibility solutions
For simplicity, we focus on the energy transition and model three scenarios:
| Scenario | What it represents |
| Base | Gradual transition and steady execution |
| Accelerated Clean | Faster electrification and scaling of flexibility |
| Delayed Clean | Slower transition, legacy persists longer |
Impact on financial levers
These scenarios translate into changes in key financial drivers:
- revenues
- margins
- capital intensity
Rather than modelling a single future, we explicitly consider alternative sector paths.
What happens to enterprise value?
The scenarios result in a range of valuation outcomes:
| Scenario | Enterprise Value (€m) | Change vs Base |
| Base | 210.9 | – |
| Accelerated Clean | 265.7 | +26% |
| Delayed Clean | 179.8 | -15% |
Interpretation:
Valuation outcomes vary meaningfully depending on the sector outlook, but the business remains fundamentally robust across scenarios.
Where does the value come from?
The differences are driven by how value shifts across the business segments:
| Scenario | Clean (€m) | Transition (€m) | Legacy (€m) | % Clean |
| Base | 168.8 | 43.6 | (1.6) | 80% |
| Accelerated Clean | 220.8 | 46.5 | (1.6) | 83% |
| Delayed Clean | 128.6 | 51.2 | (0.0) | 72% |
Interpretation:
The overall valuation is not just driven by growth, but by how value shifts between business segments, with Clean activities becoming more dominant in stronger transition scenarios.
What this means in a transaction
When acquiring a business like FlexPower, the key question is not simply “What is the valuation?”, but rather: Which sector scenario is implicitly priced in?
Common pitfalls include:
- Pricing in upside scenarios (e.g. strong growth or high spreads) without recognising it
- Treating the business as stable, ignoring exposure to sector dynamics
- Underestimating how quickly value can shift between segments
Taking a view on sectoral dynamics — explicitly through scenarios — can materially influence where you land within a valuation range.