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Series 79 practice questionmediumPrecedent Transaction Analysis

In a precedent transaction analysis, which financial metric is most commonly used as the basis for the transaction multiple?

  1. AProjected EBITDA for the year following the transaction close
  2. BLTM EBITDA of the target at the time of the transaction announcement✓ Correct answer
  3. CThe target's book value at the time of the announcement
  4. DThe target's LTM net income at the time of the transaction announcement
Explanation

Why B — LTM EBITDA of the target at the time of the transaction announcement

LTM (last twelve months) EBITDA at the time of the transaction announcement is the standard metric used to calculate precedent transaction multiples. This is because it represents the most recently available actual financial performance known to both parties when the deal was negotiated. Forward projections are less commonly used because they may not have been publicly available and could reflect acquirer synergy assumptions rather than standalone performance.

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