4.3.1. Example Precedent Transactions Analysis
This section provides a step-by-step example of how a precedent transactions analysis works in practice, ultimately establishing a valuation range for Elite Branding Consultants, a company that Superior Products is evaluating in advance of a potential merger.
Step 1: Identify a group of relevant precedent transactions. You start by familiarizing yourself with Elite Branding Consultants. It is a brand development company that plans and implements strategies for retailers and fashion designers. Following are Elite’s most recent income statement and balance sheet data:
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Elite Branding Consultants |
|
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Consolidated Statements of Income (dollar amounts in millions) |
|
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LTM |
|
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Net Revenues |
$936.00 |
|
Cost of Goods Sold (COGS) |
505.00 |
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Gross Profit |
$431.00 |
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Salaries, Wages, and Benefits |
180.00 |
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Marketing, General and Administrative |
110.00 |
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Depreciation and Amortization |
20.00 |
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Total Operating Expenses |
$310.00 |
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Operating Income |
$121.00 |
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Interest Expense |
9.00 |
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Income Before Taxes |
$112.00 |
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Income Taxes |
42.00 |
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Net Income |
$70.00 |
|
Earnings per Share |
|