PRECEDENT TRANSACTIONS ANALYSIS

Based on each question, write your answer, or highlight your answer and show the
calculation.

1. What is the premise behind precedent transactions analysis?

- The premise behind precedent transaction analysis is the belief that the market is an efficient
mechanism for determining a company's value. Analysts can identify and analyze valuation
multiples applied to those transactions by examining past transactions involving similar
companies. These multiples, such as the price-to-earnings ratio or enterprise
value-to-revenue ratio, can then be used as benchmarks to estimate the value of a target
company. Precedent transactions analysis provides valuable insights into the market's
previous assessment of similar companies, enabling analysts to make informed judgments
about the potential value of the target company in mergers and acquisitions. However, it is
essential to exercise caution and consider additional factors since each transaction and
company is unique. Therefore we can say that Precedent transactions analysis is premised
on multiples paid for comparable companies in prior M&A transactions. Precedent
transactions have a broad arrange of applications, most notable for helping determine a
potential sale price range for a company, or part thereof, in an M&A transaction or
restructuring.

2. What are some of the key considerations to examine when screening for comparable
acquisitions?
- When Screening for comparable acquisitions, some of the key considerations to examine
include :
- Market conditions
- Deal dynamics
- Strategic buyer vs. Financial sponsor
- Buyer & sell motivations
- Sale process and nature of the deal
- Purchase considerations

3. Traditionally, have strategic buyers or financial sponsors been able to pay higher purchase
prices? Why?
 - Due to their capacity to generate synergies from the target, among other factors, such as
reduced cost of capital and return thresholds, strategic buyers have traditionally been able to
pay higher purchase prices than financial sponsors.

4. Select ALL that apply. Which of the following are useful strategies for locating comparable
acquisitions? ( All of the following are useful strategies for locating comparable acquisitions)
a) Search M&A databases
b) Examine the target’s M&A history
c) Search through merger proxies of comparable acquisitions
d) Examine the M&A history of the target’s universe of comparable companies

5. Provide examples of how buyer and seller motivations may play an important role in
interpreting purchase price.
- Examples of how buyer and seller motivations may play an important role in interpreting
purchase price include :
A corporation in need of cash selling a non-core business may prioritize speed of execution, the
certainty of completion, and other structural considerations, resulting in a lower valuation than a
pure value maximization strategy.
A quality asset sold to a sponsor in a robust auction during the credit boom might have resulted in a
higher valuation.
A strategic buyer may stretch to pay a higher price for an asset if substantial synergies are realized,
or the asset is critical to its strategic plan.

6. How might a hostile transaction affect the multiple paid?

- Hostile transactions may increase costs to the acquirer due to the need to tender shares at a
premium directly from shareholders. They also may create a bidding war between the
hostile party and another buyer.

7. When does a public acquirer need to file a proxy statement in connection with an M&A
transaction?
- If a public acquirer is issuing new shares over 20% of its pre-deal shares outstanding to fund
the purchase consideration. In that case, it must file a proxy statement for its shareholders to
vote on the proposed transaction.
8. How might market conditions affect the multiple paid for a target?
- A robust economic and financing environment generally leads to higher multiples due to
increased boardroom confidence and lower cost of capital (cheaper financing cost).
Conversely, poor economic and financing of the environment would be expected to result in
lower multiples paid.

9. Under what SEC/EDGAR code is a proxy statement filed in connection with a business
combination?
a) Schedule TO
b) 14D-9
c) DEFM14A
d) 13E-3

10. For a public target acquisition where a shareholder vote is required, what SEC filing
serves as a good source for exploring deal dynamics?
- For a public target acquisition where a shareholder vote is required The proxy statement
("Background of the Merger" section) serves as a good source for exploring deal dynamics.

11. When is a Schedule TO filed?

- A Schedule TO is filed upon commencement of a tender offer.

12. What is a 14D-9?

- In response to the tender offer, the target files a Schedule 14D-9 within ten business days of
commencement. Schedule 14D-9 is a filing with the Securities and Exchange Commission
(SEC) made by a target company in response to a tender offer made by an interested party.
In addition, schedule 14D-9 contains a recommendation from the target's board of directors
to the target's shareholders on how to respond to the tender offer.

13. What are two common exhibits included in an 8-K when filed in connection with an M&A
transaction?
a) Equity research
b) Fairness opinion
c) Press release
d) Definitive purchase/sale agreement

14. Under what circumstances is a public acquirer obligated to file an 8-K upon signing a
definitive agreement with a target?
- Generally, the completion of an acquisition must be reported in an 8-K if the assets, income,
or value of the target is 10% or greater than that of the acquirer. Furthermore, for more
significant transactions where assets, income, or value of the target comprises 20% or
greater than that of the acquirer, the acquirer must file an 8-K containing historical financial
information on the target and pro forma financial information within 75 days of the
completion of the acquisition.

15. Which of the following SEC filings is filed when an affiliate of the target company is part
of the buyout group?
a) PREM14A
b) 14D-9
c) 13E-3
d) S-3

16. For an LBO of a private company, in what situation would the banker be able to locate the
target’s financial information?
- If public debt securities, such as registered high-yield bonds, were used in the financing
structure, the banker would be able to locate the target’s financial information.

17. For M&A transactions involving private targets, under what circumstances is there
sufficient info to spread the transaction multiples?
- There is sufficient info to spread the transaction multiples of Material transactions to public
acquirers and for a sponsor or private acquirer using public debt securities.

18. Which of the following are types of purchase consideration in an M&A transaction?
a) Cash
b) Synergies
c) Taxes
d) Stock

19. Why might cash be a preferred form of purchase consideration to stock?

- Cash might be a preferred form of purchase consideration to stock because of a Guaranteed
value.

20. Under what circumstances might stock be preferred?

- A stock might be preferred for tax reasons or to share the upside potential, including growth
and synergies.

21. What is the difference between a fixed and floating exchange ratio?
- A fixed exchange ratio defines the number of shares of the acquirer's stock to be exchanged
for each share of the target's stock. In a floating exchange ratio, the number of acquirer
shares exchanged for target shares fluctuates to ensure a fixed price for the target's
shareholders.

22. Given the assumptions below, calculate equity value.

Assumptions

Acquirer Share Price $40.00

Exchange Ratio 0.50

Target Fully Diluted Shares Outstanding 50.0 million

- Equity value = Acquirer Share Price * Exchange Ratio * Target Fully Diluted Shares
Outstanding
- Equity value = $40.00*0.50*50.0million
- Equity value = $1.0 billion

23. What are most generic and widely-used multiples in Precedent Transactions Analysis?
a) Enterprise Value-to-Net Income
b) Enterprise Value-to-LTM EBITDA
c) Offer Price-to-LTM Diluted EPS
d) Offer Price-to-LTM EBITDA

24. What is a premium paid?

- A premium paid is the total dollar amount per share the acquirer offers relative to the
target's unaffected share price expressed as a percentage. It is only applicable to public
targets.

25. Given the assumptions below, calculate the premium paid.

Assumptions

Offer Price per Share $20.00

Target Unaffected Share Price $16.00

- Premium paid = Offer Price per Share / Target Unaffected Share Price-1
- Premium paid = 20/16-1 = 0.25
- Premium paid = 25 %

26. On which share price(s) is the premiums paid analysis based?

- The premium paid analysis is based on the "unaffected" share price, typically the share price
at various intervals before the transaction announcement.

27. When might the day prior to the actual transaction announcement not serve as the
appropriate benchmark for establishing the “unaffected” share price?
- This would happen in the event of the announcement of a company's decision to pursue
strategic alternatives, leaks to the public, or rumors before transaction announcement.

28. Which of the following are examples of synergies?

a) Closing of nearby situated, overlapping facilities
b) Cost savings from headcount reduction
c) Hiring a new brand marketing team
d) Loss of sales due to overlapping customers

29. In what type of M&A scenario are synergies most common? Why?
- Synergies are most common when a strategic buyer is purchasing a target company that
operates a similar or related business. The acquirer and target often have overlap in
facilities/people that can be eliminated.

30. Why do public acquirers typically announce expected synergies?

- Public acquirers typically announce expected synergies in order to receive credit from
investors for potential value creation.

31. Given the following assumptions, calculate the pre-synergies and synergies-adjusted
acquisition multiples.

($ in millions)

Assumptions

Company A

Purchase Price $1,200

LTM EBITDA 150

Synergies 25

- Pre- synergies = Purchase Price/LTM EBITDA

- Pre- synergies = 1200/150 = 8
- Pre- synergies = 8x

- Synergies- adjusted = Purchase Price/(LTM EBITDA + Synergies)

- Synergies- adjusted = 1200/(150+25 )= 6.86
- Synergies- adjusted = 6.9x

32. Why are transaction multiples in precedent transactions analysis calculated on the basis of
LTM financial statistics?
 - Transaction multiples in precedent transactions analysis are calculated on the basis of LTM
financial statistics because the full projections that an acquirer uses to frame its purchase
price decision are generally not public and subject to a confidentiality agreement, so the
banker must use LTM financial data as it can be calculated from publicly available data.

33. Which comparable acquisitions typically serve as “best”?

- Business similarity to the target, recent or during a similar point in the cycle, and similar
deal dynamics.

34. In performing a comprehensive valuation of a given target, would precedent transactions

be expected to be toward the high end, low end, or middle end of the range?
- In performing a comprehensive valuation of a given target, the precedent transactions are
expected to be toward the higher end, typically above comparable companies and LBO
analysis.
35. Why do precedent transactions tend to provide higher multiple ranges than comparable
companies?
- First, buyers generally pay a "control premium" when purchasing from another company.
The acquirer receives the right to control decisions regarding the target's business and its
underlying cash flows in return for this premium. Second, strategic buyers often have the
opportunity to realize synergies, which supports the ability to pay higher purchase prices.

36. When could the valuation range derived from comparable companies be higher than that
derived from precedent transactions?
- The valuation range derived from comparable companies can be higher than that derived
from precedent transactions if the particular sector is "in play" or has high growth
expectations, potentially due to the point in the cycle.

37. What are some of the limitations of precedent transactions?

- The limitations of precedent transactions include the following:
- Time lag : transactions have occurred in the past and may not reflect the prevailing market
conditions.
- Comparable acquisition : in some cases, finding a robust universe of precedent comps may be
challenging.