Question

Please sort the following into pros for comparable company analysis and pros for precedent transaction analysis.

1. Comparable company analysis
2. Precedent transaction analysis

Observable current value for a company (what investors are actually paying for business right now)

Large number of potential companies to compare to

Readily available

Includes takeover premium / control premium

Includes synergy value

Shows the value investors paid for the entire company (not just 1 share)

Answer 1

Comparable company analysis(CCA)	Precedent transaction analysis(PTA)
Two of the 3 methods for valuing a company, the other one being the Discounted Cash flow method.Both are relative valuation,ie. Valuing by comparing.
Compares available peer data & calculates metrics like P/E, EV/EBITDA,etc. from the published financial statements of comparable companies in the industry-- to arrive at this company's stock value.	Compares by analysing similar transactions , in which similar companies ,in the same industry ,have been sold ,in some recent past, extrapolates to suit its own needs --to arrive at a value for the entire company( not one share of stock)
That said, the line items can be identified , as follows , with each of the types of valuation strategy:
Observable current value for a company (what investors are actually paying for business right now)--as this method concentrates on the currently traded market values.	Includes takeover premium / control premium--- as here, the basis of valutaion is the price paid by the purchaser , which includes premium paid for acquiring a controlling interest in the to-be acquired company, than just owning a certain no.of shares in it.These are not considered in CCA.
Large number of potential companies to compare to--which is possible , within the industry , in which the company operates.Such nos. are not possible for PTAs	Includes synergy value--this analysis , takes into account the future benefits that are expected to accrue , because of the merger.In CCA, synergy values are not extrapolated.
Readily available---all the data reqd. for this analysis, are readily available in the published financial statements , of the companies.Informations not so easily available in case of PTAs.	Shows the value investors paid for the entire company (not just 1 share)-- that is similar transaction, in its entirety is analysed , with a view to decide the right purchase price , instead of just doing a theoretical valuation---Based on what had actually taken place--- CCA aims to fix a value per share of stock.