Precedent Transactions
Precedent Transactions is a valuation methodology that refers to how bankers use transactions of similar companies to determine how much to value the company they’re working with.
Example
Let’s say we’re valuing FacelessFlowers as we’re looking to sell the business. FacelessFlowers is a flower producer.
Recent flower producer M&A transactions have been valued between 6.0x and 7.0x EV / EBITDA.
So if FacelessFlowers has an EBITDA of $2, the valuation range from Precedent Transactions would be $12 - $14.
In the room
The standard follow-up is why precedents typically produce higher multiples than comps. The answer is the control premium — acquirers pay extra for control and expected synergies, which public trading prices don't include.