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CMA Final · Strategic Performance Management and Business Valuation · Valuation in Mergers and Acquisitions

In a merger valuation, the acquirer values the target using the average of recent comparable transaction multiples rather than the target's own forecasts. This is known as the:

This is the precedent transactions method. It values the target using multiples paid in similar past acquisitions, so it reflects control premiums actually paid, unlike book value, dividend discount or residual income approaches.

  1. APrecedent transactions methodCorrect
  2. BAdjusted book value method
  3. CDividend discount method
  4. DResidual income method

Explanation

Using multiples from earlier comparable deals is the precedent (comparable) transactions method. The others rely on book values, dividends or residual earnings.

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