Precedent Transactions
Investment Banking glossary · Investment Banking Valuation
Definition
Valuation based on multiples paid in comparable M&A deals.
Precedent Transactions in plain English
To figure out what a company is worth, one of the best clues is: what did buyers actually PAY for similar companies recently? Precedent Transactions valuation looks at past M&A deals (mergers and acquisitions — one company buying another) in the same industry and pulls out the 'multiple' paid — for example, the price came to 10 times the target's yearly earnings — then applies that yardstick to the company you're valuing. It's exactly how a realtor prices your house by checking what nearby houses recently SOLD for. One nuance: these prices usually include a 'control premium' — buyers pay extra to own the whole company outright — so they tend to run a bit higher than everyday stock-market prices.
Related Investment Banking terms
Investment Banking practice questions · Investment Banking flashcards · Investment Banking study guide