An analyst identifies five precedent transactions with EV/EBITDA multiples of 12.0x, 13.5x, 11.0x, 15.0x, and 9.5x. The 15.0x transaction occurred during a credit bubble with readily available cheap financing. How should the analyst handle this data point?

AInclude all five transactions and use the mean multiple
BExclude the 15.0x transaction entirely and use only the remaining four
CInclude all transactions but note the market conditions; present the analysis with and without the outlier to provide context✓ Correct answer
DReplace the 15.0x transaction with the current industry average trading multiple

Explanation

Why C — Include all transactions but note the market conditions; present the analysis with and without the outlier to provide context

Best practice in precedent transaction analysis is to include all relevant transactions but provide appropriate context about market conditions that may have influenced the multiples paid. Presenting the analysis both with and without the outlier allows the client to understand the range and make informed judgments. Outright exclusion without explanation could be seen as cherry-picking data, while blindly including inflated multiples from a credit bubble would overstate fair value.

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