Glossary
Deal economics
What is precedent transactions?
Multiples paid in past acquisitions of similar companies.
They include a control premium, and the financing and mood of the year they were struck. A precedent from a hot market is a ceiling, not a guide.
A worked example
Recent takeovers in the sector were done at 11x to 14x EBITDA. Those prices include control premiums, so precedents usually point to a higher value than trading comparables for the same company.
Where it catches you in the game
- The football field on each mandate shows precedents above comps.
It comes up most on the buy-side analyst desk and the investment banking desk.
Related terms
Learn it by using it
Definitions stick once they've cost you money. Take a seat, make three calls a year and watch what precedent transactions does to your returns.