Precedent transactions

Valuing a business by the multiples paid in past acquisitions of similar companies.

Transaction multiples usually sit above trading multiples because the buyer is acquiring control and often expects synergies. A sector trading at 9.7 times EBITDA may have seen deals at 11.5 times.

The data has known problems. Deals cluster at market peaks, so a set drawn from a hot period overstates value. Announced multiples often use forecast earnings that were never achieved. And the synergy assumption belongs to a specific buyer rather than to the asset.

It is the right benchmark when valuing a business that is actually for sale, and the wrong one for a minority stake in a listed company.