Precedent transaction analysis values a company from the prices paid to acquire similar companies.
A buyer of the whole company gains control of cash flows and strategy and expects synergies, so it pays more than the market price of a minority share. Premiums of 20% to 40% are common. This is why precedents usually give higher values than trading comps.
Precedent deals in Maple's sector were done at 10.0x to 12.0x LTM EBITDA, median 11.0x.
Few truly comparable deals exist; deal terms are often undisclosed for private targets; market conditions at the time (cheap debt, a hot sector) drive multiples; and each price reflects that buyer's synergies.
A football field chart shows the value range from each method as a horizontal bar on a common price-per-share axis. Maple's summary:
| Method | Low | High |
|---|---|---|
| Trading comps (8.0x to 10.0x EBITDA) | $12.20 | $15.80 |
| DCF (WACC 10% to 8%) | $14.16 | $20.29 |
| Precedent transactions (10.0x to 12.0x EBITDA) | $15.80 | $19.40 |
Analysts usually add the 52-week trading range and the range of analyst price targets. The overlap of the bars, here roughly $15 to $16 for a minority stake and higher for control, is where a negotiation tends to settle.
DCF is the only intrinsic method but is the most sensitive to assumptions. Comps show what the market pays today. Precedents show what buyers pay for control. A valuation is credible when the methods can be reconciled.
An offer of $33 a share compares with:
| Reference price | Price | Premium |
|---|---|---|
| Unaffected, one day before | $26.00 | 26.9% |
| 30-day average | $25.00 | 32.0% |
| 52-week high | $35.00 | -5.7% |
A deal at a premium to recent prices but below the 52-week high often draws shareholder complaints that the company is being sold cheaply after a fall. Bankers show all three in fairness opinions.
A buyer pays an enterprise value of 1,980 for a target with EBITDA of 180, a headline 11.0x. Including 30 of expected run-rate synergies, the buyer is paying 1,980 / 210 = 9.4x. Comparing headline multiples across deals with very different synergies can mislead; when synergies are disclosed, show both.
Deals done in 2021, with very low interest rates and high equity valuations, were priced at multiples that would be hard to justify at 2026 financing costs. Weight recent deals more heavily, note the rate environment of each, and consider adjusting older multiples by the change in sector trading multiples since then.
Add to the method bars: the 52-week trading range (where the market has valued the company), analysts' price targets, and an LBO bar showing what a financial buyer could pay for a 20% to 25% IRR (Module 10). The LBO bar often acts as a floor in a sale: if strategic buyers will not beat it, private equity will.
When methods disagree, explain why rather than averaging. Precedents above comps reflect control premiums and synergies. A DCF far above both may mean the forecast is optimistic, or that the market is undervaluing the company; the explanation is the analysis.
In public deals, the board's banker states whether the price is fair from a financial point of view, supported by the analyses above. Because the banker's fee often depends on the deal closing, many boards obtain a second opinion from a bank without a success fee.
Find three acquisitions in one industry from public announcements. Record the enterprise value, LTM EBITDA multiple and premium for each. Build a football field chart for a company in that industry using your comps from Module 8, a DCF and these precedents.
Workbook for this module: Precedent transactions and football field, Starter (.xlsx) · Solution (.xlsx). Build the yellow cells in the starter; open the solution only to check your work.
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