Precedent Transactions Valuation
The basis for precedent transactions being used as a valuation methodology is that M&A involving similar companies on a business and financial basis will yield similar multiples to your target.
- Select universe of comp transactions
- Locate deal-related and financial information – Need press release of the deal, 8K, 10K, and 10Q. Type of payment: cash, stock, cash & stock.
- Spread financial information, ratios and multiples – Get transaction TEV (implied) & transaction MVE (implied)
- Benchmark precedent transactions
- Determine implied valuation
20% to 25% control premium paid with the transaction multiple being an implied one based upon the valuation.
Determine whether the market is good or bad based upon whether people are paying good premiums (control premiums).
When a transaction occurs, update client on the latest transaction to show them impact on the control premiums being paid and implied multiple as well.
Point to the transaction comps that have the highest control premium.