Precedent transactions

Precedent transactions value a company by the multiples buyers paid for similar companies in past acquisitions. Because buyers pay to control a business, these multiples include a control premium and usually exceed trading multiples. They are central in sell-side advisory and fairness opinions.

Search deal databases and filings for transactions in the same sector, of similar size, ideally in the last three to five years. Market conditions matter: deals struck at the top of a credit cycle used cheaper debt and look expensive in a tight market.

Enterprise value at the offer price divided by the target's last-twelve-month revenue or EBITDA at announcement. Use figures as they were known at the time, not restated later. Record the premium paid over the undisturbed share price, typically measured one day and four weeks before announcement.

Data can be thin, deals are rarely truly comparable, and older deals reflect different rates. Disclosure for private targets may be limited. Use precedents as one input and adjust for context rather than applying the median mechanically.

In a sell-side pitch, precedents show the client what buyers have paid and support a target price. In a buy-side context they show what is defensible to a board. Always be ready to explain why the most expensive deal in the set was expensive.