Precedent Transactions Analysis
Precedent transactions analysis just like comparable analysis, uses a multiples-based approach to develop an implied valuation range for a given company, division, business, or of collection of assets. The main criteria of performing precedent transactions is the selection of an appropriate universe of comparable acquisition. Once an initial set of comparable acquisitions is selected, factors such as market conditions, deal dynamics, motivations, etc. are being examined.
1)Market conditions refer to the business and economic environment along with the prevailing state of the capital markets, at the time of the transaction. They have to be viewed within the context of specific sectors and cycles. As these conditions directly affect availability and cost of financing of acquisition they influence the price that the acquirer is willing or able to pay.
2) Because of the their potential ability to realize synergies from the transaction, among other factors, including lower cost of capital and return thresholds strategic buyers have been able to pay higher purchase prices than financial sponsors.
3) Motivations my also affect the purchase price. This may be the case when a corporation in need of cash that is selling a non-core business may prioritize speed of execution, certainty of completion which may result in a lower valuation than a pure value maximization strategy.
In general there are 3 types of transaction structures that occur. The all-cash, stock-for-stock and cash and stock transaction. Cash is the cleanest from and certainty of value for all shareholders, however because of the exchange or receipt of shares of stock they are taxable events. In a cash and stock transaction the acquirer offers a combination of cash and stock as purchase
1)Market conditions refer to the business and economic environment along with the prevailing state of the capital markets, at the time of the transaction. They have to be viewed within the context of specific sectors and cycles. As these conditions directly affect availability and cost of financing of acquisition they influence the price that the acquirer is willing or able to pay.
2) Because of the their potential ability to realize synergies from the transaction, among other factors, including lower cost of capital and return thresholds strategic buyers have been able to pay higher purchase prices than financial sponsors.
3) Motivations my also affect the purchase price. This may be the case when a corporation in need of cash that is selling a non-core business may prioritize speed of execution, certainty of completion which may result in a lower valuation than a pure value maximization strategy.
In general there are 3 types of transaction structures that occur. The all-cash, stock-for-stock and cash and stock transaction. Cash is the cleanest from and certainty of value for all shareholders, however because of the exchange or receipt of shares of stock they are taxable events. In a cash and stock transaction the acquirer offers a combination of cash and stock as purchase