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%┬ácomparable. 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.