Can precedent transactions sometimes not yield a higher value than comparables?

Can precedent transactions sometimes not yield a higher value than comparables?

• A. They always produce higher values.
• B. Sometimes not the case when there is a mismatch between the M&A market and the public market.
• C. They always produce lower values.
• D. They are irrelevant to valuation.

Answer: (B)

Precedent transactions typically carry a control premium and reflect deal-specific synergies, which can push values above public comps. But this isn’t guaranteed. If there’s a misalignment between the M&A market and the public market, the prices seen in past deals may not end up higher than what the public-market multiples imply. For instance, public markets might be pricing in strong growth or undervalued risk in a way that buyers in the M&A market can’t capture due to financing constraints, deal friction, or competitive dynamics. In those conditions, the transaction-based value can be the same as or even below the comparable-based value. So it’s entirely possible for precedent transactions to not yield a higher value when the M&A market and public market diverge.

Precedent transactions typically carry a control premium and reflect deal-specific synergies, which can push values above public comps. But this isn’t guaranteed. If there’s a misalignment between the M&A market and the public market, the prices seen in past deals may not end up higher than what the public-market multiples imply. For instance, public markets might be pricing in strong growth or undervalued risk in a way that buyers in the M&A market can’t capture due to financing constraints, deal friction, or competitive dynamics. In those conditions, the transaction-based value can be the same as or even below the comparable-based value. So it’s entirely possible for precedent transactions to not yield a higher value when the M&A market and public market diverge.