Question

Indicate whether the following statements related to precedent valuation are trueor false.

1. Legit comparable transactions are easy to find.
2. It may account for potential synergies.
3. It shows the value investors paid for the entire company.
4. Once comparable transaction list is set, the multiple to use does not depend on the merged-firm' characteristics.   
5. Generally, information about comparable transactions is public.   

Answer 1

Precedent Transaction Analysis (sometimes called “historical transaction”) is one of the major company valuation analyses down in investment banking. This is a historical valuation method where you will be comparing past transactions in order to gauge current valuation of your company.

Statement 1: False. Legit comparable transaction are not easy to find. Precedent transactions are rarely directly comparable; every transaction has its own set of unique circumstances

Statement 2: True. Precedent transaction multiples are impacted by the split of the value of synergies between target and bidder.

Statement 3: True. Realistic in the sense that past transactions were successfully completed at certain valuation levels. The analysis therefore indicates a range of plausibility for offered multiples or premiums to public stock prices

Statement 4:False. Not all aspects of a transaction can be captured in valuation multiples (e.g. existence of commercial agreements or governance issues)

Statement 5: False. Public data on past transactions can be limited and misleading