Precedent Transactions

Key Highlights

• Precedent transactions is a way to figure out a company’s value by looking at what similar businesses sold for in past mergers or acquisitions.

• It’s best used as a starting point alongside other valuation methods.

What is Precedent Transactions?

Precedent transactions is a way to figure out a company’s value by looking at what similar businesses sold for in past mergers or acquisitions. It’s often called “precedent transaction analysis,” “transaction comps,” or “M&A comps.”

Why It’s Used?

• Helps set a fair price for a company during a sale or acquisition, commonly used in investment banking, private equity, or corporate finance.

• Gives buyers and sellers a sense of what others paid for similar companies, guiding deal negotiations.

• Shows industry trends, market demand, and who else might be interested in similar deals.

How It Works?

• Analysts find recent deals involving companies like the one being valued (same industry, size, or financial setup).

• They pick the most similar and recent transactions with good data.

• They calculate “multiples” (like EV/EBITDA or EV/Revenue) from those deals and apply them to the company’s numbers to estimate its value.

• These deals often include a “control premium” (extra value for taking over a company), so the multiples are usually higher than those from public stock markets.

Key Points

• The results depend on finding truly similar deals and reliable data.

• Past market conditions might not match today’s, so the analysis isn’t perfect.

• It’s best used as a starting point alongside other valuation methods.