What is a precedent transactions analysis, and when is it most useful?
What the interviewer is testing
Whether you understand what a deal multiple captures that a trading multiple doesn't.
Answer it out loud firstTake 30–60 seconds, as you would in the room. Then compare with the model answer.
Show the model answer
It looks at the multiples paid in past acquisitions of similar companies. Because buyers paid for control — and often for synergies — precedents tell you what an acquirer might pay. They are most useful in sell-side M&A and fairness opinions, to frame the price for a whole company, and to argue for a premium over the share price.
The full answer
The steps
- Screen for deals in the same sector, of similar size, preferably recent, where control changed hands.
- Collect the price, the consideration (cash or shares), the target's financials at announcement and the premium paid.
- Compute transaction EV and the multiples: EV/LTM EBITDA, EV/revenue, and for listed targets the premium to the undisturbed share price.
- Select the most relevant deals and a range, explaining the context of each.
- Apply the range to the target's LTM figures.
Strengths and weaknesses
- Strengths: real prices paid, includes the control premium.
- Weaknesses: few truly comparable deals, old deals reflect different markets and financing conditions, limited disclosure for private targets, and each price reflects one buyer's synergies.
Mistakes to avoid
Including minority-stake deals without adjusting — they carry no control premium.
Follow-ups they may ask
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