Module II· Precedent TransactionsIntermediate
Question
Why are precedent multiples typically higher than trading-comps multiples?
Answer
Three main reasons:
- Control premium: buyers pay for control (changing strategy, replacing management, directing cash-flow use). Historically 20–35%.
- Synergy pricing: strategic buyers pass part of the expected synergies to the seller (typically 25–50% of the synergy value).
- Auction dynamics: bidding processes drive prices up — the last bidder pays the 'winner's curse' premium.
- For listed targets: a take-private premium over the pre-announcement share price (typically 25–30%).
Deep diveShow more details
Consequence
Precedent multiple = trading multiple × 1.2–1.4.
Pitch tip
'Premium Stack — 25% Control Premium, 5% Synergies-Allocation, 5% Auction Premium — explains the gap between trading comps 8x and precedents 11x.'