What is the Wachstumsabschlag in the IDW S1 terminal value, and why is it often below the inflation rate?
A core Valuation interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
The Wachstumsabschlag is the growth discount applied in the perpetuity (terminal) phase — economically the long-run growth rate of the nominal cash flows that reduces the capitalization rate. It's debated because, unlike a naive 'growth = inflation' assumption, German practice and FAUB guidance often use a rate below inflation, on the reasoning that companies cannot fully pass through inflation and retained earnings face reinvestment that doesn't always earn the cost of capital. The choice matters enormously: a higher Wachstumsabschlag sharply raises the Ertragswert, so it's a frequent point of contention in squeeze-out and Spruchverfahren litigation where the appraised value is challenged.
WHAT INTERVIEWERS LISTEN FOR
- ✓Growth discount in the perpetuity phase
- ✓Often set below inflation (incomplete pass-through)
- ✓Highly sensitive — large value impact
- ✓Contested in squeeze-out/Spruchverfahren
COMMON MISTAKES
- ✗Assuming growth = inflation automatically
- ✗Underestimating its value sensitivity
- ✗Confusing it with the Basiszins
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