VALUATION METHOD:

PRECEDENT TRANSACTION
ANALYSIS-
SELECTING COMPARABLE
TRANSACTION,
SPREADING COMPARABLE
TRANSACTION.
 GROUP:3
Members :
1. Abhilasha 04
2. Anushka 12
3. Smriti Jha 64
4. Sunny 66
5. Aayushi Priti 71
 CONTENT:
• VALUATION METHOD
• PRECEDENT TRANSACTION ANAYSIS
• WHY USE PRECEDENT TRANSACTION ANALYSIS
• SEARCHING PRECEDENT TRANSACTION ANALYSIS
• SELECTING THE APPROPRIATE TRANSACTION
• ANALYSIS OF VARIOUS MULTIPLES
• PROS AND CONS OF PRECENDENT TRANSACTION
• SPREADING COMPS
• STEPS TO SPREAD COMPS
• PITFALLS
 VALUATION METHOD
Valuation is a process of determining the
present value of asset. But here it is used to
value a company. There are three methods of
valuing of company:
1. Comparable Transaction Analysis
2. Precedent Transaction Analysis
3. Discounted Cash Flow Analysis
 PRECEDENT TRANSACTION ANALYSIS
Precedent Transaction Analysis (sometimes called “historical
transaction”) is one of the major company valuation
analyses done in investment banking. This is a historical
valuation method where you will be comparing past
transactions in order to gauge current valuation of your
company. In this exercise we will break down the steps used
in precedent transaction analysis.
• Determining the Relevant Transaction
• Determining to multiples to measure
• Collecting the data
• Spreading the Comps
WHY USE PRECEDENT TRANSACTION?
• To value a private business that does not have
public trading comparables.

• To provide fairness opinion to a Board of director.

• To identify potential bidders.

• To evaluate the market demand for acquiring the

company.
 SEARCHING FOR PRECEDENT
TRANSACTION
• Previous valuation analyses
• Public tender documents and merger proxy
statements.
• SDC database
• Capital IQ Fact set
• News internet research
• Equity research
 SELECTING THE APPROPRIATE
PRECEDENT TRANSACTION
• Business Characteristics
• Financial outlook
• Time of the deal
• Location of the target.
ANALYSIS OF VARIOUS MULTIPLES
• There are mainly two types of valuation
multiples:
1. Equity Multiples
2. Enterprise value Multiples
 EQUITY MULTIPLES
It is mainly used for investment decision.
Some of the Equity Multiples are:
• P/E Ratio
• Price / Book Ratio
• Dividend Yield
• Price / sales
 ENTERPRISE VALUE (EV) MULTIPLES
• This is used when decision are about Merger
and Acquisitions. Some of the EV multiples
are:
• EV /Sales
• EV/ EBITDA
• EV/ Investment capital
PROS OF PRECEDENT TRANSACTIONS

• Based on publicly available information.

• Provide guidance to assess what a buyer may be willing to pay

for the business.

• Can reveal valuable information.

• Useful in M&A negotiations and discussion.

 CONS OF PRECEDENT TRANSACTION
• Public data is based on past transaction.
• Information can be misleading.
• Factors may affects the multiples such as
governance issues, specific agreement, and
intangible values.
• Precedent transaction dynamics are rarely
perfectly comparable.
 SPREADING COMPS
• It means calculating and displaying them in an
easy-to-read fashion, typically in spreadsheet.
• The Comps table should include Mean,
Median, and Max statistics for each metrics in
each year to provide a valuation range for the
company you are valuing.
 STEP TO SPREAD PRECEDENT
TRANSACTION ANALYSIS
• Search for relevant transaction
• Analyze and refine the available transaction
• Determine a range of valuation multiples
• Apply the valuation multiples to the company
in question
• Graph the results in a football field
 PITFALLS TO AVOID WHEN USING
PRECEDENT TRANSACTION
• Lack of due diligence

• Not having a favourable sale agreement or

purchase contract

• Not establishing a seller Non-Compete

agreement
CONCLUSION
THANK YOU!