Precedent Transactions Analysis

Category: finance

A valuation methodology that looks at the past prices paid for similar companies in recent mergers and acquisitions.

Precedent transactions analysis establishes a market benchmark. Analysts calculate the multiples paid in historical deals (such as Enterprise Value to EBITDA) and apply those metrics to the target company. Because these transactions include a "control premium"—the extra cost to buy the whole company—this methodology generally yields a higher valuation than public trading comparables.

Common Examples

• Our M&A pitch deck utilized precedent transactions analysis to show that competitor data platforms were acquiring targets at an average multiple of 6.5x EBITDA.
• When conducting precedent transactions analysis, it is vital to filter out deals executed during market bubbles to avoid overstating current target values.