Valuation: Precedent transactions

What it is

You apply multiples derived from comparable historical M&A transactions to the target's relevant financial metric. Unlike trading-multiple comparison (which uses public-market valuations), precedent-transaction multiples include control premiums.

The dominant framework when the thesis is sale of company, or when arguing the public-market discount underestimates the strategic / take-out value.

When to use

• ✅ Thesis is theses/sale-of-company.md — sale to strategic or PE
• ✅ Sector has had ≥3 comparable transactions in the last 3–5 years
• ✅ Transaction details are public (purchase price, deal multiples, advisor fairness opinions)
• ✅ Buyer universe is reasonably comparable (similar strategics, similar deal size)
• ❌ Avoid if all precedents are >5 years old (regime has changed)
• ❌ Skip if precedents are entirely from distressed sales (multiples artificially low)
• ❌ Don't use as primary if precedents have wildly different deal rationales (financial buyer vs. strategic synergies)

Methodology

1. Identify 3–7 precedent transactions:
   • Same sector and business model
   • Last 3–5 years (more recent = more relevant)
   • Mix of strategic and financial buyers
   • Public-target deals (private→public is often unverifiable)
2. Extract deal multiples from public sources (10-K disclosures, fairness opinions, S-4 filings, financial press)
3. Calculate median + range
4. Apply median to target's metric for implied take-out price
5. Compare to current for premium math

What to extract per transaction

Sensitivity convention

Show median deal multiple + range. Apply median for base case.

Precedent transactions in [sector], 2020-2025:

Date       Target         Buyer        EV/EBITDA   30-day premium
─────────────────────────────────────────────────────────────────
2024-09    Co A           Strategic    13.2x       42%
2023-04    Co B           PE consort   11.8x       35%
2023-11    Co C           Strategic    14.5x       48%
2022-06    Co D           Strategic    12.1x       38%
2021-10    Co E           PE           10.5x       28%
─────────────────────────────────────────────────────────────────
Median                                 12.1x       38%

Implied take-out price for [target]:
  $X (median) → +Y% over current

Exemplars

• Pershing Square · Allergan-Valeant (Apr 2014) — pharma deal multiples as anchor for take-out valuation; Actavis ultimately bought Allergan at 75% premium
• Starboard · Office Depot (Aug 2013) — office products consolidation precedents
• Marathon Petroleum · Speedway sale (Sep 2019, Elliott push) — convenience-store deal multiples ($21bn ultimate sale)
• Engaged Capital · Outerwall (Feb 2016) — sale-process deal comp anchor
• Various sector-spin precedents in patterns/precedent-transaction.md

Full list: examples/by_valuation.json → precedent_transactions

See also

• patterns/precedent-transaction.md — the rhetorical pattern
• theses/sale-of-company.md — the dominant companion thesis
• valuation/multiple-comparison.md — trading-multiple sibling
• slides/sum-of-parts-reveal-recipe.md — for layered SoP + precedent-transaction framings