Precedent Transactions Analysis
A valuation based on precedent transactions arrives at a valuation based on what similar companies in the target company’s peer group were bought and sold for.
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Steps:
- Compile list of relevant transactions
- Calculate relevant financial ratios
- Establish valuation range based on calculated multiples
- Apply valuation range to target company
1. Compile list of relevant transaction
- Transactions should have relevant attributes:
- Industry group
- Timing – Transactions should be recent (typically no more than five years)
- Business mix (products, markets served, distribution channels, etc)
- Geographic location
- Size (revenues, assets, market cap)
- Sources of precedent transactions:
- Internal firm resources
- Databases (e.g. Capital IQ, Thomson)
- SIC/NAICS code screen
2-4. See Comparable Companies Analysis
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