Precedent Transactions Analysis

Question 1

What is the premise of a precendent transactions analysis?

Answer 1

Multiples paid in prior M&A transactions provide a relevant reference point for valuing a target.

Question 2

Name the pros of a precendent transaction analysis

Answer 2

Market based
Current
Relativity
Simplicity
Objectivity

Question 3

Name the cons of a precendent transaction analysis

Answer 3

Market based
Time lag
Absence of comparable acquisitions
Availability of information
Acquirer’s basis for valuation

Question 4

What is the the foundation for performing a precedent transactions analysis

Answer 4

Selection of an appropriate group of comparable acquisitions

Question 5

Selection of an appropriate group of comparable acquisitions; why?

Answer 5

control premiums and synergies?

Question 6

Name the five steps of a precedent transaction?

Answer 6

Locate the universe of comparable acquisitions
Locate the necessary deal-related and financial information
Spread key statistics, ratios, and transaction multiples
Benchmark comparable acquisitions
Determine valuation

Question 7

Describe locating the universe of comparable acquisitions

Answer 7

Search M&A databases (SDC, Capital IQ, FactSet Mergerstat)
Examine M&A history of target and comparable companies
Review merger proxies of comparable companies
Equity and fixed income research reports
Learn circumstances and deal dynamics of each transaction

Question 8

Locate the necessary deal-related and financial information

Answer 8

SEC disclosures: 
proxy statements
tender offer filings
registration statement/prospectus
going private deals
other disclosures (8k,10k,10q)
Equty and FIxed Income research reports

Question 9

Spread key statistics, ratios, and transaction multiples

Answer 9

Enter transaction data (purchase price, form of consideration, key financial statistics)
Calculate key multiples on the basis of actual LTM financial statistics (same as those used for comparable companies)
Multiples often reflect control and/or synergy premium

Question 10

Equity value is based on the annonced..

Answer 10

offer price pre share (as oppsoed to the market price per share)

Question 11

What are the three forms of consideration for the announced offer price per share in a Precedent Transactions analysis

Answer 11

All cash
Stock for stock
Cash and stock mix

Question 12

Name the three types of stock for stock consideratins in a precedent transactions analysis; and describe

Answer 12

Fixed exchange ratio: shares are fixed; value can fluctuate
Floating Exchange Ratio: shares can fluctuate, deal value is fixed
Cash and stock mix

Question 13

understand the key multiples in connection with comparables analysis

Answer 13

in addition premiums and synergies are of interest

Question 14

Premium =

Answer 14

[offer price/unaffected share price] - 1

Question 15

Synergy-adjusted multiple =

Answer 15

[EV/(LTM EBITDA + Synergies)]

Question 16

Benchmark comparabel acquisitions

Answer 16

lay out financial statistics/ratios for target and precedent targets side by side
Determine relative strength of precedent transactinos
Understand relevant deal circumstances and dynamics

Question 17

Determine valuation

Answer 17

Use multiples of precendent transaction to derive an implied valuation range for target
Mean and median establish preliminary range
High and low serve as reference points
Often, analyisis focuses on only a few of the most similar deals