Question:

What are some problems with using a Precedent Transactions analysis?

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Answer:

No two transactions are completely alike which makes it difficult for them to be 100% comparable. Market sentiment, transaction structure, size of the target company, and whether the acquirer was a strategic company or financial sponsor can all have huge effects on the value of a transaction.
There may not be sufficient data since often times the terms of acquisitions of private companies are not released.
There may not be any recent precedent transactions in the industry you are analyzing.

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Valuation

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