Using Comparable Transactions Data
Intermediate | Published: 2024-12-30
Comparable transactions analysis values a company by examining what acquirers actually paid for similar businesses in recent M&A deals. The method captures control premiums (the extra amount buyers pay for full ownership), synergy expectations, and real negotiated prices—data points that trading comparables miss entirely. When you're valuing a potential acquisition target or assessing takeout probability, precedent transactions provide the most relevant benchmark.
The point is: trading multiples tell you what minority shareholders pay; transaction multiples tell you what control buyers pay. These are fundamentally different questions.
Precedent Transactions vs Trading Comps (When to Use Each)
Trading comparables use current stock prices of publicly traded peers. You calculate multiples based on market prices and apply them to your target. This works for valuing minority stakes.
Precedent transactions use historical M&A deal prices. You calculate multiples based on what acquirers actually paid. This works for valuing control stakes, assessing M&A likelihood, or setting floor/ceiling prices in negotiations.
The durable lesson: use trading comps when valuing what a stock is worth today; use transaction comps when valuing what a buyer might pay for the whole company.
| Situation | Trading Comps | Precedent Transactions |
|---|---|---|
| Public equity investment | Yes | No |
| Sell-side M&A advisory | No | Yes |
| LBO analysis | No | Yes |
Control Premium (Why Buyers Pay More)
Acquirers pay premiums over trading prices because control confers value that minority shareholders don't capture: strategic synergies, financial control, management changes, and elimination of agency costs.
Why this matters: control premiums in US deals typically range from 20% to 40% over the unaffected stock price (the price before deal speculation).
Calculating control premium:
Control Premium = (Deal Price - Unaffected Price) / Unaffected Price x 100
Example: Target stock traded at $50 before M&A rumors. Acquirer pays $65 per share. Control Premium = ($65 - $50) / $50 x 100 = 30%
If trading comps show 10x EV/EBITDA, a reasonable transaction multiple might be 12x-14x EV/EBITDA (trading multiple plus control premium).
Finding Comparable Deals (The Screening Criteria)
Not all transactions are comparable. Apply these filters:
Same Industry
Buyers pay for industry-specific characteristics: growth rates, margin profiles, customer stickiness. A cloud security company is more comparable to other SaaS businesses than to legacy hardware vendors, even if both share IT sector codes.
Similar Size
Transaction multiples vary by size. Larger deals (>$1B) often command higher multiples. Keep deal sizes within 0.5x-2x of your target's enterprise value.
Recent Timing
M&A markets shift with rates and credit availability. A 2021 software deal (peak valuations, ZIRP) isn't comparable to 2024 (higher rates). Prioritize deals from the last 2-3 years.
Transaction Type
Strategic acquirers pay differently than financial buyers (PE). Strategic buyers typically pay 10-20% higher multiples because they extract synergies.
Adjusting for Deal-Specific Factors
Raw transaction multiples require context:
Synergy expectations: High-synergy deals command higher premiums. If the acquirer announced $200M in cost synergies on a $2B deal, adjust down when applying to targets with fewer synergy opportunities.
Distressed sales: Targets sold from bankruptcy trade at discounts. These are floor prices, not fair value benchmarks. Exclude or use for downside scenarios only.
Competitive auctions vs negotiated sales: Competitive processes (multiple bidders) drive higher prices. A deal with 5 serious bidders reflects auction dynamics.
Earn-outs: Some deals include contingent consideration. A "$500M deal" might be $400M upfront plus $100M earn-out. Use total consideration for comparisons.
Key Multiples in M&A Context
EV/EBITDA
The workhorse M&A multiple. Enterprise value divided by EBITDA normalizes for capital structure differences.
Typical ranges (software): 8x-15x for profitable SaaS, 15x-25x for high-growth SaaS
EV/Revenue
Used when targets lack positive EBITDA or when growth matters more than current profitability.
Typical ranges (software): 3x-8x for moderate growth, 8x-15x for high-growth SaaS
The point is: EV/EBITDA values current cash generation; EV/Revenue values the revenue base regardless of current margins.
Data Sources
| Source | Access | Coverage |
|---|---|---|
| Capital IQ | Paid | Comprehensive, detailed terms |
| PitchBook | Paid | PE/VC focus, good middle-market |
| SEC filings | Free (EDGAR) | Public target deals only |
| Merger proxy (DEFM14A) | Free (EDGAR) | Full terms for public targets |
Why this matters: merger proxy statements contain detailed valuation analysis, including the banker's comparable transactions. This is free, authoritative data.
Worked Example: 5 Software Sector Acquisitions
You're valuing a mid-market SaaS company with $80M LTM revenue and $15M LTM EBITDA. Five comparable transactions from 2022-2024:
| Target | Buyer Type | EV ($M) | Revenue ($M) | EBITDA ($M) | EV/Rev | EV/EBITDA |
|---|---|---|---|---|---|---|
| Deal A | Strategic | 720 | 90 | 18 | 8.0x | 40.0x |
| Deal B | Strategic | 525 | 70 | 14 | 7.5x | 37.5x |
| Deal C | PE | 440 | 80 | 16 | 5.5x | 27.5x |
| Deal D | Strategic | 600 | 75 | 12 | 8.0x | 50.0x |
| Deal E | Strategic | 350 | 65 | 13 | 5.4x | 26.9x |
Analysis
EV/Revenue range: 5.4x - 8.0x (Median: 7.5x) EV/EBITDA range: 26.9x - 50.0x (Median: 37.5x)
Adjustments:
- Deal D (50x) included $50M announced synergies. Adjusted multiple closer to 35x
- Deal C (PE buyer) paid lower multiple. Strategic would pay 10-15% more
- Deal E occurred in Q4 2022 (valuation reset beginning). May understate current multiples
Selected range after adjustments:
- EV/Revenue: 6.5x - 7.5x
- EV/EBITDA: 32x - 40x
Implied valuation for your target:
| Metric | Value | Low Multiple | High Multiple | Low EV | High EV |
|---|---|---|---|---|---|
| Revenue | $80M | 6.5x | 7.5x | $520M | $600M |
| EBITDA | $15M | 32x | 40x | $480M | $600M |
The durable lesson: implied enterprise value of $480M - $600M. The convergence around $500-600M provides confidence in the range. Strategic buyers in competitive processes pay toward the high end; financial buyers toward the low end.
Common Errors (What Destroys Accuracy)
Using stale transactions: A 2019 SaaS deal at 15x revenue means little in 2024's rate environment. Limit comps to 2-3 years.
Ignoring deal context: The 50x EBITDA deal with massive synergies isn't comparable to standalone sales. Read the merger proxy before including deals.
Mixing buyer types without adjustment: Averaging strategic and PE deals without adjustment understates strategic value. Segment or weight appropriately.
Insufficient sample size: Two deals don't establish a range. Target 5-10 comparable transactions minimum.
Ignoring size premiums: A $10B deal multiple applied to a $100M company overstates value. Match deal sizes to your target.
Next Steps
- Identify a potential M&A target in a sector you follow
- Pull the merger proxy (DEFM14A) from SEC EDGAR—read the "Opinion of Financial Advisor" section
- Build a comp table with 5-8 transactions using Capital IQ, PitchBook, or press releases
- Adjust for deal-specific factors (buyer type, synergies, distress, auction dynamics)
- Apply adjusted multiples to your target and compare to current trading price
Related Articles
- EV/EBITDA and EV/EBIT Comparison
- Revenue Multiples for High-Growth Firms
- Valuing Negative Earnings or Early-Stage Companies
References
DePamphilis, D. (2019). Mergers, Acquisitions, and Other Restructuring Activities, 10th Edition. Academic Press. Chapter 8 (Relative valuation using comparables).
Rosenbaum, J. & Pearl, J. (2020). Investment Banking: Valuation, LBOs, M&A, and IPOs, 3rd Edition. Wiley. Chapter 2 (Comparable transactions analysis).