Tell me a couple of flaws with Precedent Transactions
Answer
Every transaction is unique. There are often synergies baked into every transaction which can drastically change a multiple, a premium paid to remove a direct competitor from the market, a premium paid to directly purchase a complementary offering, etc.
It’s also worth noting that it’s difficult to get specific data for private transactions which can make it hard to see why a company paid a certain multiple.
Why this matters to bankers
Precedent Transactions are a difficult method to use since all transactions are different and can be opaque. Understanding and considering these flaws when ascribing valuation is critical.