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Comparable Transaction


Exploring Comparable Transactions in Mergers and Acquisitions

Understanding Comparable Transactions

Comparable transactions play a crucial role in evaluating the fair value of companies during mergers and acquisitions (M&A). Similar to a home buyer assessing recent sales in a neighborhood, businesses analyze comparable transactions to determine the appropriate valuation for a potential takeover target.

The Valuation Process

Companies seeking acquisitions, along with their investment bankers, examine recent transactions involving firms with similar business models. By comparing key metrics such as enterprise value (EV) to earnings before interest, taxes, depreciation, and amortization (EBITDA) multiples, they derive a fair valuation for the target company.

Real-World Example

For instance, Becton, Dickinson and Company's acquisition of C.R. Bard, Inc. involved thorough analysis of comparable transactions within the healthcare supply industry. Goldman Sachs, retained by Bard as a financial adviser, assessed multiple valuation techniques, with comparable transaction analysis being a pivotal factor.

The Importance of Comparable Transaction Analysis

While comparable transaction analysis is a standard practice in M&A, it's essential to recognize its limitations. Despite providing valuable insights, it's not the sole determinant of a company's value. Ultimately, the final price of a deal is influenced by various factors and negotiations between the parties involved.