Precedent Transactions Analysis: How to Use M&A Deals to Value Companies

When Microsoft paid $26.2 billion for LinkedIn, it paid 8x revenue. Salesforce had bid $25 billion. The final price reflected what a buyer would actually pay—not what public markets said LinkedIn was worth.

That's the insight behind precedent transactions analysis. Public market valuations tell you what investors pay for shares. M&A transactions tell you what strategic and financial buyers pay for entire companies. These are different things.

Precedent transactions (often called "transaction comps" or "deal comps") form one leg of the valuation tripod, alongside comparable companies and DCF. Interviewers expect you to understand how to build them, when to use them, and what they reveal.

What Is Precedent Transactions Analysis?

Precedent transactions analysis values a company based on what acquirers paid for similar companies in past M&A deals.

The logic is straightforward. If Company A sold for 10x EBITDA last year, and Company B is similar, then Company B is probably worth around 10x EBITDA too.

This differs from comparable company analysis in a key way. Comps use trading multiples—what public investors pay for minority stakes. Precedent transactions use acquisition multiples—what buyers pay for control.

Control is worth more. Buyers pay premiums to own companies outright. They gain synergies, strategic options, and decision-making power. These premiums typically range from 20-40% above trading prices.

Why Precedent Transactions Matter

The Interview Angle

Interviewers ask about precedent transactions for three reasons:

Technical competence. Can you find relevant deals, calculate multiples, and interpret results?

Judgment. Can you assess which transactions are truly comparable? Can you explain why multiples vary?

Integration. Can you use precedent transactions alongside comps and DCF to triangulate value?

Expect questions like:

"Walk me through how you'd build a precedent transactions analysis."
"Why might transaction multiples differ from trading multiples?"
"What are the limitations of precedent transactions?"

The Practical Angle

In live deals, precedent transactions serve specific purposes:

Benchmarking offers. Is the proposed price fair relative to comparable deals?

Negotiation support. "Similar companies sold for 12x. Your offer of 9x is inadequate."

Fairness opinions. Boards use precedent transactions to justify M&A decisions to shareholders.

How to Build a Precedent Transactions Analysis

Step 1: Define Your Criteria

Start by identifying what makes a deal comparable. Key factors:

Criterion	Why It Matters
Industry	Same sector ensures similar business models
Size	$500M deals differ from $50B deals
Geography	US deals differ from emerging market deals
Time period	Recent deals reflect current conditions
Deal type	Strategic vs. PE vs. carve-out dynamics differ

Be specific. "Technology companies" is too broad. "Enterprise SaaS companies with $100M-$500M revenue, acquired in the last 3 years" is useful.

Step 2: Source the Transactions

Where to find deals:

Databases:

Capital IQ (most comprehensive)
Bloomberg
Refinitiv (formerly Thomson Reuters)
PitchBook (strong for PE deals)
MergerMarket

Public filings:

Merger proxy statements (DEF 14A)
8-K filings announcing deals
Tender offer documents

Research reports:

Equity research often includes precedent analysis
Industry-specific M&A reports

Aim for 8-15 transactions. Fewer than 5 lacks statistical meaning. More than 20 becomes unwieldy.

Step 3: Gather Transaction Details

For each deal, collect:

Deal terms:

Announcement date
Close date
Enterprise value (EV) of transaction
Equity value paid
Premium to unaffected stock price
Deal structure (cash, stock, mix)

Target financials:

Revenue (LTM and forward)
EBITDA (LTM and forward)
Other relevant metrics (subscribers, ARR, etc.)

Context:

Buyer type (strategic vs. financial)
Deal rationale
Competitive dynamics (was it an auction?)

Step 4: Calculate Multiples

Standard multiples for precedent transactions:

Multiple	Formula	When to Use
EV / Revenue	Enterprise Value / LTM Revenue	High-growth or unprofitable companies
EV / EBITDA	Enterprise Value / LTM EBITDA	Profitable companies, most common
EV / EBIT	Enterprise Value / LTM EBIT	When D&A varies significantly
P / E	Equity Value / Net Income	Less common in M&A
EV / Subscribers	Enterprise Value / Subscriber Count	Media, telecom

Use LTM (last twelve months) financials as of deal announcement. Forward multiples work if projections were disclosed.

Step 5: Normalize and Adjust

Raw multiples need context. Adjust for:

Synergies. Did the buyer pay for expected synergies? A strategic buyer paying 15x might expect 3x in synergy value, making the "real" price 12x.

Competitive dynamics. Auction processes drive higher prices than negotiated deals.

Market conditions. 2021 multiples differ from 2023 multiples. Note the environment.

One-time items. Adjust EBITDA for non-recurring expenses or revenue.

Step 6: Apply to Your Target

Once you have a range of multiples, apply them:

Calculate the median and mean of your transaction multiples
Identify the range (25th to 75th percentile)
Multiply by your target's relevant metric
Result: implied valuation range

Example:

Your precedent transactions show EV/EBITDA multiples of 8x-12x, with a median of 10x.

Your target has $50M LTM EBITDA.

Implied enterprise value: $400M-$600M, with midpoint at $500M.

A Worked Example

Let's value a hypothetical enterprise software company using precedent transactions.

The Target

TechCo Inc.

LTM Revenue: $200M
LTM EBITDA: $40M
High-growth SaaS platform

The Precedent Transactions

Target	Acquirer	Date	EV ($M)	EV/Rev	EV/EBITDA
SoftwareA	BigTech	2023	1,200	6.0x	15.0x
SoftwareB	PEFirm	2023	800	5.3x	13.3x
SoftwareC	Strategic	2022	1,500	7.5x	16.7x
SoftwareD	PEFirm	2022	600	4.8x	12.0x
SoftwareE	Strategic	2022	2,000	8.0x	18.2x

The Analysis

Statistic	EV/Revenue	EV/EBITDA
Mean	6.3x	15.0x
Median	6.0x	15.0x
Low	4.8x	12.0x
High	8.0x	18.2x

Implied Valuation

Method	Low	Median	High
EV/Revenue	$960M (4.8x × $200M)	$1,200M (6.0x × $200M)	$1,600M (8.0x × $200M)
EV/EBITDA	$480M (12.0x × $40M)	$600M (15.0x × $40M)	$728M (18.2x × $40M)

Interpretation

The revenue and EBITDA approaches give different ranges. This is normal. Revenue multiples are higher because they capture growth potential. EBITDA multiples focus on current profitability.

For a high-growth SaaS company, revenue multiples may be more relevant. For a mature software company, EBITDA multiples matter more.

Your job: explain which is more appropriate and why.

Precedent Transactions vs. Comparable Companies

Both use multiples. They answer different questions.

Dimension	Precedent Transactions	Comparable Companies
What it measures	Acquisition value	Trading value
Data source	M&A deals	Public stock prices
Includes control premium	Yes	No
Time sensitivity	Fixed at deal date	Changes daily
Typical premium	20-40% higher	Baseline
Availability	Limited by deal flow	All public companies

In practice, precedent transaction multiples exceed trading multiples. A company trading at 10x EBITDA might sell for 12-14x in an acquisition.

Interview insight: When asked "which gives a higher value?", the answer is usually precedent transactions—because of the control premium.

Common Mistakes

Using Non-Comparable Deals

A $50 billion mega-merger is not comparable to a $200 million acquisition. A 2019 deal may not reflect 2024 market conditions. Relevance matters more than sample size.

Ignoring Deal Context

Not all deals are equal. An auction with multiple bidders produces higher prices than a negotiated sale. A distressed sale produces lower prices. Note the context.

Forgetting Synergies

Strategic buyers pay for synergies. If Buyer X expects $50M in annual cost savings, they might pay $300M extra (assuming 6x EBITDA value for synergies). The headline multiple includes this. Adjust if comparing to a buyer without the same synergies.

Using Stale Data

M&A markets change. A 2021 precedent transaction reflects peak valuations. A 2023 deal reflects tighter conditions. Weight recent deals more heavily.

Confusing Enterprise Value and Equity Value

Transaction values are often reported as equity value (what the buyer paid for shares). You need enterprise value (equity value plus net debt). Adjust carefully.

Limitations of Precedent Transactions

Precedent transactions have real weaknesses. Know them.

Limited Data

Unlike trading comps (infinite daily data), precedent transactions are finite. In niche industries, you might find only 3-5 relevant deals.

Stale Information

Deals reflect past conditions. Markets change. A 2022 multiple may not apply in 2024.

Hidden Terms

Reported prices don't capture everything. Earnouts, escrows, and contingent payments complicate true value. Regulatory filings help, but details vary.

Unique Circumstances

Every deal has unique factors. Synergies, competitive dynamics, urgency, and relationship history all affect price. These factors don't transfer to your target.

Survivorship Bias

Failed deals don't appear in databases. You see what closed, not what fell apart. This can bias multiples upward.

When to Use Precedent Transactions

Best Applications

Sell-side M&A. "Your company should sell for at least 10x, based on recent deals."

Buy-side M&A. "We shouldn't pay more than 12x—that's the high end of precedents."

Fairness opinions. "The offer is fair relative to comparable transactions."

Take-private analysis. "PE buyers have paid 8-10x for similar companies."

Less Useful For

Unique businesses. If no comparable deals exist, the analysis fails.

Rapidly changing markets. Historical deals may not reflect current conditions.

Pure valuation. DCF is more grounded in fundamentals than deal multiples.

Practice Questions

Conceptual Questions

Q: Why do precedent transaction multiples exceed comparable company multiples?

A: Control premiums. Acquirers pay more than public market prices because they gain full control, can realize synergies, and eliminate minority shareholders. Premiums typically range 20-40%.

Q: What's the biggest limitation of precedent transactions analysis?

A: Limited and potentially stale data. Unlike trading comps with daily price updates, you're limited to deals that happened—which may be few and may not reflect current market conditions.

Q: How do you adjust for synergies in precedent transactions?

A: Identify the synergy value embedded in the price. If a buyer paid $1B including $200M for expected synergies, the "clean" price is $800M. Use the lower figure when comparing to buyers without similar synergy potential.

Technical Questions

Q: Walk me through building a precedent transactions analysis.

A: First, define criteria—industry, size, geography, time period. Second, source transactions from databases and public filings. Third, gather deal terms and target financials. Fourth, calculate multiples (EV/Revenue, EV/EBITDA). Fifth, normalize for context like synergies and deal dynamics. Sixth, apply the range to value your target.

Q: A company has $100M EBITDA. Your precedent transactions show 8x-12x EV/EBITDA. What's the implied value?

A: Enterprise value range of $800M to $1.2B. Midpoint at $1B. I'd want to understand where in that range our target falls—is it higher quality than average (toward 12x) or lower (toward 8x)?

Q: You have five precedent transactions with multiples of 6x, 8x, 10x, 12x, and 20x. Which do you use?

A: I'd investigate the 20x outlier. If it's truly comparable and reflects legitimate market value, I'd include it but note the outlier. If it was driven by unique factors (bidding war, strategic desperation), I might exclude or footnote it. Median of the full set is 10x. Median excluding the outlier is 9x.

Situational Questions

Q: Your precedent transactions are all from 2021, but we're valuing a company in 2024. How do you handle this?

A: 2021 was a peak valuation environment. I'd acknowledge that multiples have compressed since then and apply a discount—perhaps looking at how trading multiples for comparable companies have changed from 2021 to 2024, and applying a similar adjustment to the precedent multiples.

Q: You can only find three precedent transactions. Is the analysis valid?

A: Three is thin but usable. I'd present it with appropriate caveats—noting the limited sample and explaining how each deal relates to the target. I'd weight the analysis less heavily than comps or DCF. But three relevant deals are better than ten irrelevant ones.

The Bottom Line

Precedent transactions answer a specific question: what have buyers actually paid for similar companies?

This differs from what the market says a company is worth (trading comps) and what intrinsic fundamentals suggest (DCF). Each approach captures different information.

Master the mechanics: find relevant deals, calculate multiples, normalize for context. Then develop judgment: which deals are truly comparable? What explains multiple differences? How should you weight precedents against other approaches?

In interviews, demonstrate both. Show you can build the analysis. Then show you understand its limits.

That's what separates good candidates from great ones.