Module II· Precedent TransactionsIntermediate
Question
When are Precedent Transactions unreliable as a valuation method?
Answer
Unreliable in these situations:
- Low deal volume in the sector (e.g. <5 deals in 5 years) — no robust median.
- Market dislocation during the vintage (COVID 2020, the 2022 tech crash — multiples not representative).
- Structural sector change since the deals (e.g. tech disruption makes old multiples irrelevant).
- Only distressed deals available.
- A private deal market with insufficient multiple disclosure.
- Cross-border deals without enough domestic equivalents. Fix: with thin data, either broaden the universe (more geographies) or de-emphasize the method ('Trading Comps and DCF primary, Precedents indicative only').
Deep diveShow more details
Pitch tip
'Sector M&A activity sparse — only 4 directly comparable deals in last 5 years; we present precedents as supplementary, with primary reliance on DCF and trading comps.'