precedent transaction=DCF>trading comps under this scenario
so I have an interview in a few days and this topic is bothering me. I have done my search, but it seems like there isn't a clear cut answer for this topic. I know valuation is as much of an art as it is science but can I say the following and be okay?
Can I say all else equal (projection are "expected" rather than optimistic, market condition stable, purchase price based on market participant assumptions), value indications from precedent transaction (PT) and DCF are equal and greater than that resulting from trading comps since
1) PT and DCF are both on a controlling basis
2) Both PT and DCF incorporates synergies
3) Value indication from trading comps is on a non-controlling basis as the market value of equity is based on the price of a single stock, and price is valued on a standalone basis
yes, that is pretty fair to say. Generally, PT > DCF > Trading Comps > LBO. If you do your DCF including synergies and assuming full control, if optimistic, it can be close to or even greater than PT.
If you are going to say that about comps, just be sure that being a potential acquisition target isn't priced into the company or any of the other comparables.
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