Precedent Transactions
What is covered
Applying multiples to your company
A precedent transactions analysis is a valuation method that estimates a company’s value by examining prices paid in past M&A transactions involving similar companies. The goal is to understand how acquirers have historically valued comparable businesses in change-of-control situations, making this approach especially relevant for takeover and acquisition contexts. Because these transactions reflect negotiated prices and include control premiums, precedent transactions often result in higher valuation multiples than public market trading comps.
What is a Precedent transactions model?
Like we said above the process is similar to a comparable company's analysis but instead of looking at comparable company's multiples, you look at similar companies that have been through a merger or acquisition and look at those multiples instead. The process begins with selecting relevant transactions. Transactions are chosen based on similarity to the target company in terms of industry, business model, size, growth profile, and geographic exposure. Timing is also important, as deals completed in similar market and economic environments provide more meaningful benchmarks. Analysts typically focus on completed transactions within the past several years to ensure the data reflects current valuation norms. Deal structure matters as well, with preference given to acquisitions involving full control rather than minority investments.
"Can you walk me through a precedent transactions model?"
"A precedent transactions analysis values a company by looking at prices paid in past M&A deals for similar businesses. I would start by identifying relevant transactions based on industry, business model, size, and timing, focusing on completed, control acquisitions in comparable market environments. I’d then calculate transaction enterprise value for each deal and collect LTM financials such as revenue and EBITDA at the time of acquisition.
Using those inputs, I’d calculate multiples like EV/Revenue and EV/EBITDA, analyze the range across transactions, and select an appropriate multiple to apply to the target’s financials. This produces an implied enterprise value, which can then be adjusted for net debt to arrive at equity value, giving a transaction-based view of valuation that reflects control premiums paid in real acquisitions."
The below model is an incomplete model. We will go through all of the parts and complete it as we cover each topic. (LTM = Last 12 months)
PT 1 - Selecting transactions
Selecting past transactions
The process begins with selecting a set of relevant precedent transactions that closely align with the target company. Transactions are chosen based on similarity in industry, business model, products or services, size, growth profile, and geographic exposure to ensure the valuation benchmarks are meaningful. The timing of each transaction is also critical, as deals completed in similar economic, interest rate, and market environments provide more relevant comparisons than older transactions executed under very different conditions.
As a result, analysts typically prioritize completed transactions
from the past several years to reflect current valuation norms and investor behavior. Deal structure is another key consideration, with a preference for transactions involving a full change of control, since these deals incorporate control premiums and strategic considerations that minority investments or partial acquisitions do not fully capture.
PT 2 - Gathering financials
Once the transaction set is defined, key deal data is compiled. This includes the acquirer, target, announcement or completion date, and the transaction enterprise value. Enterprise value represents the total value paid for the business, including equity purchased and assumed debt. Financial metrics such as LTM revenue and LTM EBITDA at the time of the transaction are then collected to ensure consistency across deals.
PT 3 Valuation multiples
Once transaction enterprise value and financial data are gathered, transaction multiples are calculated to understand how acquirers valued similar businesses in past deals. The most common multiples used in a precedent transactions analysis are EV/Revenue and EV/EBITDA, as they reflect the price paid for a company’s core operations independent of capital structure.
These multiples capture not only the target’s operating performance at the time of the deal, but also factors such as expected synergies, growth opportunities, competitive dynamics, and the strategic value to the acquirer. Because transactions involve a change of control, these multiples often include a control premium and may reflect optimistic assumptions about future performance. (All explained in the technical guide)
After calculating multiples for each transaction, analysts review the full range, identify outliers driven by unique deal circumstances, and summarize the data using averages, medians, and percentile ranges. The selected multiple range is then applied to the target company’s financial metrics to estimate an implied valuation grounded in actual acquisition pricing.
Pt 4 - Applying multiples to your company
After calculating multiples for each transaction, the data is summarized using statistics such as the median, average, and percentile ranges to create a defensible valuation framework. This step is important because individual transactions can be influenced by unique circumstances, such as unusually high synergies, competitive bidding, or distressed conditions, which can skew results if relied on in isolation. Using a range of outcomes allows the analysis to reflect market reality rather than a single data point.
- The median multiple is most commonly used as the primary reference point, as it represents the middle of the dataset and reduces the impact of outliers.
- The 25th percentile is typically applied when the target company has lower growth, weaker margins, higher risk, or less strategic appeal than the broader transaction set.
- Conversely, the 75th percentile is used when the target exhibits strong fundamentals, superior growth opportunities, premium assets, or high strategic value that could justify a higher control premium.
Applying these different multiples to the target’s financial metrics produces a valuation range that captures both downside and upside scenarios. The resulting implied enterprise values are then adjusted for net debt and other claims to arrive at implied equity value, and, if relevant, an implied value per share that can be used for pricing, negotiations, or fairness analysis.
Overall, precedent transactions analysis is most commonly used in M&A, fairness opinions, and takeover scenarios, where understanding control premiums and acquisition pricing is critical. It complements trading comps and intrinsic valuation by anchoring value to real acquisition outcomes, providing a transaction-based perspective on what buyers have historically been willing to pay for similar businesses.