Fundamental Glossary / Valuation Methods
Precedent Transaction Analysis
A relative valuation built from the multiples paid in completed acquisitions of similar companies.
Formula
Deal enterprise value / the target's EBITDA, sales, or earnings, at the time of the deal. The median of relevant deals is applied to the subject.
What it means
Transaction multiples include a control premium. Buyers pay more per share for the whole company than the market pays for a small lot. Precedent analysis therefore usually sits above trading comps.
It answers what strategic buyers have paid, which is the right question in a change-of-control context and the wrong ceiling for a small open-market purchase.
How to read it
Old deals from a different rate cycle are weak precedents. Prefer recent transactions in the same industry and the same region, and know whether the multiple was on trailing or forward earnings.
What to watch
Deal values can include earn-outs and synergies the buyer hoped for. The published multiple may assume those synergies. Applying it to a standalone company double-counts a premium you will not receive.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.