Precedent transaction analysis
Principles of Finance glossary · Principles Of Finance
Definition
Valuation method using multiples paid in recent M&A transactions in the same industry.
Precedent transaction analysis in plain English
When you want to figure out what a company is worth, one trick is to look at what buyers recently paid for similar companies. Precedent transaction analysis does exactly that: it studies real, recent buyouts and mergers (M&A) of comparable businesses in the same industry and uses those prices as a yardstick. It works like pricing a house by checking what nearby similar houses actually sold for — real deals, not guesses. The prices are usually expressed as "multiples," such as the sale price compared to the company's yearly profit, so you can scale it to fit the company you're valuing.
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