Trading comparables, covered in the previous essay, describe minority, liquid claims when the peers are listed. Precedent transactions describe acquisitions. The buyer is paying for the right to direct the business, hire and fire, and merge it with something else. That control is worth something. How much of the something is already the buyer’s own synergy is the argument that decides whether the seller is being realistic or simply pricing someone else’s spreadsheet.
What has to be in the multiple
A headline “times EBITDA” from a press sentence is not a precedent you can use. You need the enterprise value that was actually paid, the EBITDA it was applied to, and the crumbs that change both. Earn-outs, retained property, surplus cash left in the company, a locked-box date, and a completion-accounts true-up all move the price. UK sale and purchase agreements commonly choose either a locked-box mechanism, where value leaks after a historic date are forbidden, or completion accounts, where the cheque is adjusted to a closing balance sheet. The multiple you quote should say which world it lives in.
This desk is not a law firm. The point of naming those mechanisms is narrower: two deals with the same headline multiple can hand the seller different cash on day one.
Three classroom deals, not a market study
No database was consulted for the table below. These are constructed deals, labelled as such, so that a reader can see why a single average is the wrong instinct. They are imagined around businesses with a family resemblance to Porth Engineering, not around Porth itself.
| Deal | Buyer | EV £ | EBITDA £ | EV/EBITDA |
|---|---|---|---|---|
| A. Regional roll-up | Strategic | 6,210,000 | 900,000 | 6.9x |
| B. Standalone buy-out | Financial | 3,240,000 | 600,000 | 5.4x |
| C. Distressed workshop | Trade, rescue | 1,140,000 | 300,000 | 3.8x |
Deal A’s 6.9 times includes synergies the buyer expects from moving purchasing into an existing group, and 15 per cent of the headline price is an earn-out tied to retention of the largest customer. The cash the seller can plan a life around is not 6.9 times. Deal B is a financial buyer underwriting the company as it stands, with a modest management incentive, and no credit for a merger that will not happen. Deal C is a rescue. The EBITDA is depressed and the buyer is really paying for machines and a lease. Folding C into an average with A is how people announce that “the market is 5.4 times” and feel briefly scientific.
Selecting, not averaging
For a going-concern sale of a healthy fictional fabricator, Deal C is the wrong family. It informs a downside, which belongs in the asset essay, not in the central multiple. Between the strategic 6.9 and the financial 5.4, a seller who does not yet have a strategic bidder in the room should not book the synergies. A buyer who does have them should not pretend they are the seller’s property.
The multiple used in this classroom, for a transaction where a financial buyer is the realistic counterparty and a strategic premium is possible but uncommitted, is 6.2 times. It sits nearer the financial deal than the strategic one, which is a judgement you can disagree with. The point of writing it down is that disagreement has somewhere to land.
Applied to Porth’s normalised EBITDA of 720,000, 6.2 times is an enterprise value of 4,464,000. Net debt of 620,000 comes off. Equity value is 3,844,000. Upfront cash would be lower still if, as in Deal A, part of that enterprise value were an earn-out. This illustration assumes the 6.2 times is paid at completion, so that the comparison with discounted cash flow equity of 3,946,337 is about the method, not about deferred consideration.
Control premiums, said carefully
Textbooks often quote a control premium of some familiar percentage over a minority trading price. Quoted percentages travel too well. They were estimated on particular markets, in particular decades, for listed companies where a minority price exists. A UK private company usually has no observable minority price. Applying “a 30 per cent control premium” on top of a private-company multiple that was already meant to be a control value is a good way to count control twice. If your trading comps are minority and listed, a control discussion belongs in the bridge from those comps to a deal. If your evidence is already deals, control is inside the evidence. Do not tip it in again.
Synergies and the seller’s walk-away
A strategic buyer’s model will often show extra margin from procurement, a shared finance team, or cross-selling. Those cash flows are not the standalone company’s cash flows. If the seller builds a discounted cash flow that includes them, then also cites the strategic precedent, the same hope has been sold twice. The cleaner split is: standalone value as the floor of the negotiation, and a stated share of identified synergies as the argument for a premium. The share is a bargain. It is not a fact about the company as it sits on Fernleigh Road’s fictional cousin.
What good precedent work looks like
- Each deal on its own row, with buyer type, date, and whether the multiple is headline or upfront.
- EBITDA defined the same way as the company’s own normalised EBITDA.
- A rejected column: deals you looked at and refused, with the reason.
- A sentence on locked-box or completion accounts, and on any property left behind.
- No average that mixes rescues with strategic auctions unless the subject company could genuinely be either.
Precedents are the right primary evidence when a sale is actually the decision, and when enough relevant deals can be described properly. They are weak evidence when the only available transactions are a different size, a different country, or a different reason for selling. In a shareholder dispute that will never reach a buyer, a deal multiple can still be informative, but it is no longer “what we would get on Friday”. It is an analogy, and analogies should wear a label.