Definition
Precedent transaction analysis values a company by examining the prices paid in previous acquisitions of similar businesses. Transaction multiples typically include a control premium (20-40% above trading price), making them higher than comparable company multiples. This method reflects real prices buyers have paid and is essential in M&A advisory.
lightbulb Example
Five comparable companies were acquired at EV/EBITDA multiples of 10x, 11x, 12x, 9.5x, and 11.5x. Median = 11x. Target EBITDA is $50M, implying ~$550M enterprise value.
verified_user Key Points
- Reflects actual prices paid in acquisitions
- Includes control premium over trading multiples
- Must adjust for market conditions at transaction time
- Most relevant for M&A valuation contexts