Precedent Transaction Analysis
Use past M&A deals to benchmark a target's acquisition premium.
What are precedent transactions?
Precedent transaction analysis values a company by looking at multiples paid in historical M&A deals involving comparable companies. Unlike trading comps (which reflect minority stakes), precedent transactions include a control premium — what an acquirer pays above market price to gain full ownership. This makes them more relevant for M&A contexts.
Control premium
Acquisitions typically happen at a 20–40% premium to pre-announcement stock price. The premium reflects synergies, competitive dynamics, and the scarcity value of control. Precedent transactions bake this in; trading comps do not.
Finding relevant transactions
Screen by: (1) industry/SIC code, (2) deal size within 0.5x–2x the target's size, (3) time period (typically last 5 years, unless the market has changed significantly). Strategic buyers typically pay higher multiples than financial (PE) buyers due to synergies.
Limitations
Historical deals may reflect different market conditions, interest rate environments, or strategic logic that doesn't apply today. Small samples make the analysis noisy. Use alongside DCF and trading comps, never in isolation.