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What are transaction comparables and how does an analyst find the right comparables?

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What are transaction comparables or precedent transactions and how does an analyst find the right comparables universe for transaction comparables?


Transaction comparables provides valuation multiples such as PE, EV/EBIT and EV/EBITDA among others for a list of comparable transactions that took place in the same sector as that of the target.


Finding the right set of previous transactions requires a deep understanding of the company and the sector. Senior bankers are always consulted first to get some guidance on what set of comparables would suit the current deal. The inclusion of a wrong deal in the table can skew valuations of the deal, impacting credibility of both, the analyst and the advisory.


Analyst go through databases such as Bloomberg and S&P’s Capital IQ scanning for past deals completed by peers in the sector and ones that the target company completed. Perusing merger proxies of peers can also reveal a set of useful precedent transactions.



 

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Ben Davidson
Dec 26, 2022

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