What is the correct order for a precedent transaction analysis?

First, companies should be chosen based on having similar financial characteristics and for being in the same industry. Second, the size of the transactions should be similar in size to the transaction that is being considered for the target company.

What are precedent transaction multiples?

Transaction Multiples are a type of financial metrics used to value a company. Transaction multiples are also known as “Precedent Transaction AnalysisPrecedent Transaction AnalysisPrecedent transaction analysis is a method of company valuation where past M&A transactions are used to value a comparable business today..”

Why do precedent transaction multiple and comps differ?

Comparable Public Company Multiples vs Precedent Transaction Comps. The main difference between the two is that public comps is based on the company’s market cap; i.e. how much the market is paying for the company’s stock vs precedent transaction comps actually uses what one party paid for the company they acquired.

Why can’t you use equity value Ebitda as a multiple rather than enterprise value Ebitda?

Why can’t you use Equity Value / EBITDA as a multiple rather than Enterprise Value / EBITDA? EBITDA is available to all investors in the company – rather than just equity holders. Similarly, Enterprise Value is also available to all shareholders so it makes sense to pair them together.

What is precedent valuation?

Precedent transaction analysis is a relative method of valuation that involves looking at past Merger and Acquisition (M&A) transactions, which are also commonly referred to as “precedents”, to value a comparable business today.

When would an analyst use a Transactions multiple?

Transaction multiples are a relative valuation method that compare a value to a relevant value driver. They are used in transaction comparables analysis where valuation insight comes from analyzing and comparing the price paid in similar M&A deals.

What is equity value and enterprise value?

Enterprise value and equity value are two common ways that a business may be valued in a merger or acquisition. While enterprise value gives an accurate calculation of the overall current value of a business, similar to a balance sheet, equity value offers a snapshot of both current and potential future value.

How do you calculate transaction multiples?

Understanding Transaction Multiples Multiples are calculated by dividing a value number by a value driver. The value number is Enterprise Value (EV) or equity value. All equity to enterprise value bridge adjustments must be made based on the latest balance sheet data available at the deal announcement date.

How do you use EBITDA multiple for valuation?

Example Calculation

1. Calculate the Enterprise Value (Market Cap plus Debt minus Cash) = $69.3 + $1.4 – $ 0.3 = $70.4B.
2. Divide the EV by 2017A EBITDA = $70.4 / $5.04 = 14.0x.
3. Divide the EV by 2017A EBITDA = $70.4 / $5.50 = 12.8x.

Why can’t you use EV earnings or price EBITDA as valuation metrics?

Why can’t you use EV/Earnings or Price/EBITDA as valuation metrics? Therefore EV/Earnings is an apples to oranges comparison and is considered inconsistent. Similarly Price/EBITDA is inconsistent because Price (or equity value) is dependent on capital structure (levered) while EBITDA is unlevered.