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FNCE90062
Studies in Finance
Department of Finance
1
What is Precedent Transactions Analysis
Steps for Precedent Transactions Analysis
Assignment Part I
Table of Contents
1 What is Precedent Transactions Analysis
2 Steps for Precedent Transactions Analysis
Overview
Step I. Select the Universe of Comparable Acquisitions
Step II. Locate the Necessary Deal-Related and Financial
Information
Step III. Key Statistics, Ratios, and Transaction Multiples
Step IV: Benchmark the Comparable Acquisitions
Step V: Determine Valuation
3 Assignment Part I
Step 3
Step 4
Dr Zhen Shi FNCE90062 Capstone Studies in Finance Week 4
What is Precedent Transactions Analysis
Steps for Precedent Transactions Analysis
Assignment Part I
Precedent Transactions Analysis
Employs multiples-based approach to derive an implied
valuation range for target
Premised on multiples paid for comparable companies in prior
transactions
Selection of appropriate universe of comparable acquisitions is
foundation for performing precedent transactions
– Involves companies comparable to the target
– Most recent transactions are most relevant
Dr Zhen Shi FNCE90062 Capstone Studies in Finance Week 4
What is Precedent Transactions Analysis
Steps for Precedent Transactions Analysis
Assignment Part I
Precedent Transactions Analysis
Under normal market conditions, transaction comps (approach
3) tend to provide a higher multiple range than trading comps
(approach 1) for two principal reasons
– Buyers pay “control premium”
– Strategic buyers: synergies
Dr Zhen Shi FNCE90062 Capstone Studies in Finance Week 4
What is Precedent Transactions Analysis
Steps for Precedent Transactions Analysis
Assignment Part I
Overview
Step I. Select the Universe of Comparable Acquisitions
Step II. Locate the Necessary Deal-Related and Financial Information
Step III. Key Statistics, Ratios, and Transaction Multiples
Step IV: Benchmark the Comparable Acquisitions
Step V: Determine Valuation
Table of Contents
1 What is Precedent Transactions Analysis
2 Steps for Precedent Transactions Analysis
Overview
Step I. Select the Universe of Comparable Acquisitions
Step II. Locate the Necessary Deal-Related and Financial
Information
Step III. Key Statistics, Ratios, and Transaction Multiples
Step IV: Benchmark the Comparable Acquisitions
Step V: Determine Valuation
3 Assignment Part I
Step 3
Step 4
Dr Zhen Shi FNCE90062 Capstone Studies in Finance Week 4
What is Precedent Transactions Analysis
Steps for Precedent Transactions Analysis
Assignment Part I
Overview
Step I. Select the Universe of Comparable Acquisitions
Step II. Locate the Necessary Deal-Related and Financial Information
Step III. Key Statistics, Ratios, and Transaction Multiples
Step IV: Benchmark the Comparable Acquisitions
Step V: Determine Valuation
The Overview of the Precedent Transactions Analysis
Step I. Select the Universe of Comparable Acquisitions
Step II. Locate the Necessary Deal-Related and Financial
Information
Step III. Spread Key Statistics, Ratios, and Transaction
Multiples
Step IV. Benchmark the Comparable Acquisitions
Step V. Determine Valuation
Dr Zhen Shi FNCE90062 Capstone Studies in Finance Week 4
What is Precedent Transactions Analysis
Steps for Precedent Transactions Analysis
Assignment Part I
Overview
Step I. Select the Universe of Comparable Acquisitions
Step II. Locate the Necessary Deal-Related and Financial Information
Step III. Key Statistics, Ratios, and Transaction Multiples
Step IV: Benchmark the Comparable Acquisitions
Step V: Determine Valuation
Step I: Select the Universe of Comparable Acquisitions
Search M&A databases for comparable acquisitions
– Requires a strong understanding of the target and its sector
– Examines the M&A history
– Review merger proxies
Dr Zhen Shi FNCE90062 Capstone Studies in Finance Week 4
What is Precedent Transactions Analysis
Steps for Precedent Transactions Analysis
Assignment Part I
Overview
Step I. Select the Universe of Comparable Acquisitions
Step II. Locate the Necessary Deal-Related and Financial Information
Step III. Key Statistics, Ratios, and Transaction Multiples
Step IV: Benchmark the Comparable Acquisitions
Step V: Determine Valuation
Step II. Locate the Necessary Deal-Related and Financial
Information
Dr Zhen Shi FNCE90062 Capstone Studies in Finance Week 4
What is Precedent Transactions Analysis
Steps for Precedent Transactions Analysis
Assignment Part I
Overview
Step I. Select the Universe of Comparable Acquisitions
Step II. Locate the Necessary Deal-Related and Financial Information
Step III. Key Statistics, Ratios, and Transaction Multiples
Step IV: Benchmark the Comparable Acquisitions
Step V: Determine Valuation
Step III: Key Statistics, Ratios, and Transaction Multiples
Key statistics, ratios and transaction multiples like in
approach 1, except
– Equity value
* Offer price per share is multiplied by the target’s fully
diluted shares outstanding at the given offer price
– Based on the announced offer price per share
* Purchase consideration
– Refers to the mix of cash, stock, and/or other securities
that the acquirer offers to the target’s shareholders
Dr Zhen Shi FNCE90062 Capstone Studies in Finance Week 4
What is Precedent Transactions Analysis
Steps for Precedent Transactions Analysis
Assignment Part I
Overview
Step I. Select the Universe of Comparable Acquisitions
Step II. Locate the Necessary Deal-Related and Financial Information
Step III. Key Statistics, Ratios, and Transaction Multiples
Step IV: Benchmark the Comparable Acquisitions
Step V: Determine Valuation
Step III: Calculation of Key Statistics, Ratios, and
Transaction Multiples
Purchase consideration
– All-Cash Transaction
– Acquirer makes an offer to purchase all or a portion of
the target’s shares outstanding for cash
Dr Zhen Shi FNCE90062 Capstone Studies in Finance Week 4
What is Precedent Transactions Analysis
Steps for Precedent Transactions Analysis