Definition
Precedent transactions analysis values a target by applying the multiples paid in past M&A transactions for comparable companies. Multiples come from completed deals — public-to-public, public-to-private, and private acquisitions where data is available.
Why it matters
Precedent transactions reflect what acquirers are willing to pay for control of comparable businesses, including the control premium that’s absent from trading comps. They are typically the highest-yielding valuation method in a fairness opinion analysis.
Limitations
- Deal-specific factors (synergies, financing environment, competitive dynamics) often justify outliers, making the median less informative
- Smaller datasets than trading comps; quality of disclosure varies
- Cycle-dependent — deals from frothy markets pull averages up
Practical use
Boards typically look at the median, mean, and full range of precedent multiples relative to where the current deal prices.