Series 79 practice questioneasyValuation Methods
Why do precedent transaction multiples usually exceed comparable public company trading multiples for the same target?
- APublic companies are always more leveraged
- BPrecedent transactions exclude debt from enterprise value
- CTrading multiples are based on forecast revenue only
- DPrecedent deals often include a control premium paid to obtain ownership and synergies✓ Correct answer
Explanation
Why D — Precedent deals often include a control premium paid to obtain ownership and synergies
Precedent deals often include a control premium paid to obtain ownership and synergies An acquirer typically must pay more than unaffected market price to gain control and capture future synergies. That is why bankers often treat precedents as an upper end of valuation and trading comps as a market-based floor or midpoint.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 477+ Series 79 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Related Collection, Analysis & Evaluation of Data questions
- Which valuation method is least affected by temporary differences in capital structure among peer companies?
- In a DCF, final-year unlevered free cash flow is $40 million, the perpetual growth rate is 2%, and WACC is 8%. Which…
- A company has 70 million basic shares at $30 per share, $170 million of debt, and $35 million of cash. Ignoring…
- A manufacturer has 75 days of inventory, 46 days sales outstanding, and 27 days payables outstanding. What is its cash…