Valuation Methods – Precedent Transaction Comparables

In addition to the public trading multiples comparables, the other common multiples valuation methodology is the M&A multiples compset. M&A multiples uses mergers and acquisition transactions to value the target. One can use the value that others that have put on a company to help determine the valuation of the target.

The example below, taken from the Oracle/Autonomy deck shows recent precedent transactions in the enterprise software space.

M&A comp set

The list would be shorter and more varied than the trading multiples compset.

Premium

With most acquisitions, there is a premium paid for the target. There is value to controlling the company rather than just investing in the target. There is potential for operational synergies (top-line growth, decreased overhead, decreased financial risk, funding cost etc.)
That premium is included in the price of the acquisition and hence baked into the M&A multiple, so you would need to discount the M&A multiple to get to a fair trading multiple. I’ve seen discounts ranging from 15% to 50%.

After coming up with the the multiples, you apply them to your target.