What is the difference between Relative Valuation and Companies Comparable and Precedent Transactions?
Studying for my technical and they all seem to take account the firms size and industry. What are the main differences for these 3?
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Comparable Companies vs. Precedent Transactions: Precedent transactions are closed deals in which the buyer often pays a "control premium" for acquiring a majority stake (control investment) in the target. Trading comps just refer to the valuations/multiples that peers trade at in the market. The price Microsoft pays for Activision (when the deal closes) is an example of a precedent transaction, this price is $95/share. The month before the deal was announced Activision was trading at ~$65/share. This is an example of the difference between a precedent transaction multiple/valuation and the multiple/valuation you get from a comparable comp's trading valuation.
Comparable Companies & Precedent Transactions methods are both Relative Valuation techniques. A DCF would be an example of Absolute Valuation methodology.
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