Valuation

Precedent transactions

3 min read · updated June 29, 2026

Precedent transactions answer a different question than trading comps: what have real acquirers actually paid to buy similar companies outright? Instead of looking at where peers trade day to day, you look at the multiples paid in completed M&A deals. It's the most concrete evidence you have of what a whole company changes hands for — because someone actually wrote the check.

The mechanics mirror trading comps. You assemble a set of past deals involving similar targets, compute the multiple paid in each (usually EV / EBITDA, off the target's metrics at announcement), and apply that range to your company. The difference is what the multiples embed.

The control premium

When an acquirer buys a company, it doesn't pay the trading price — it pays a premium over it, typically in the range of 20–40%. That premium buys two things: control (the right to run the business, replace management, redirect strategy) and synergies (cost cuts and revenue gains the buyer expects to capture). A minority shareholder buying 100 shares gets neither, which is why they pay less.

Key insight

This is why precedent transactions almost always produce higher values than trading comps. Comps reflect a minority, no-control trading price; precedents reflect a full-control acquisition price with a premium baked in. So the two methods bracket the answer: comps set the floor of the range, precedents set the ceiling. If your precedents came in below your comps, something is wrong with one of the sets.

How to pick the deals

A good precedent set controls for the things that move M&A multiples:

Comparable target — same industry, business model, and rough size.
Recency — deals from the last few years. Multiples move with the cycle; a 2007 deal priced in a very different credit and equity environment.
Deal dynamics — a competitive auction with multiple bidders fetches more than a quiet negotiated sale, and a strategic buyer chasing synergies often pays more than a financial sponsor.

Common mistake

Reaching back too far for deals. Transaction multiples are a snapshot of the market at the moment that deal was struck — a frothy-cycle acquisition tells you little about what a buyer would pay in a tighter market. Recency and comparable deal conditions matter as much as a comparable target.

A worked example

Suppose recent deals in the space were done at 11x to 13x EBITDA, and your target generates ** $200** of EBITDA. That implies a takeout enterprise value of roughly **$ 2,200 to $2,600** — visibly above the$ 1,800–$2,200 the trading comps suggested, because of the control premium.

Comps vs. precedents, side by side

| | Trading comps | Precedent transactions | | --- | --- | --- | | Based on | Current market trading prices | Prices paid in past M&A deals | | Perspective | Minority, no control | Full control of the company | | Control premium | No | Yes (~20–40%) | | Data freshness | Real-time | As of each deal's date | | Typical result | Lower end of range | Higher end of range |

Interview tip

If asked which method gives a higher value, lead with the reason, not just the answer: "Precedents, because they include a control premium and expected synergies that trading prices don't." Then note that the two are complementary — comps tell you where it trades, precedents tell you what it'd take to buy it. That framing shows you understand why you run both, which is the point of the question.

Make it stick

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