Transaction Multiples Valuation

Article bySayantan Mukhopadhyay
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Transaction Multiples Valuation?

Transaction Multiples Valuation refers to the valuation technique that determines how valuable an entity is at the time of being considered a potential mergers and acquisitions (M&A) target. It becomes an important financial metric to assess values against value drivers, helping investors understand the latest trends on how a particular entity is valued.

Transaction Multiples

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It is based on the premise that the value of the company can be estimated by It is based on the premise that the company’s value can be estimated by analyzing the price paid by the acquirer company’s incomparable acquisitions. This valuation method is usually used by financial analysts in corporate development private equity firmsPrivate Equity FirmsPrivate equity firms are investment managers who invest in many corporations' private equities using various strategies such as leveraged buyouts, growth capital, and venture capital. The top private equity firms include Apollo Global Management LLC, Blackstone Group LP, Carlyle Group, and KKR & Company more, and investment banking segments.

Key Takeaways

  • Transaction multiples, often termed acquisition multiples, provide a valuable approach to assessing a comparable company by drawing insights from past merger and acquisition (M&A) transactions.
  • This valuation methodology gauges a company’s worth through an examination of comparable acquisitions. It’s a widely utilized tool within financial analysis, prominently employed across corporate development, private equity, and investment banking domains.
  • The transparency of public information makes this approach accessible to all. Leveraging a range-based valuation enhances its reliability and aids in fostering a deeper understanding of the market dynamics.

Transaction Multiple Valuation Explained

Transaction multiple valuation allows analysts or evaluators to examine a potential merger and acquisition target and value it on the basis of the latest trends. As a result, the investors or buyers know how a company is valued or should be priced, and accordingly, they decide if paying for a M&A deal would be fruitful or not.

In an M&A, multiple valuation becomes a method to look at the past Merger & Acquisition (M & M & M & M&A) transactions and value a comparable company using precedents. Analysts use discounted cash flow and multiples to figure out the valuation for a company, while considering the premium paid in the company belonging to a specific industry.

The precedents that valuation experts take into consideration must have certain traits to ensure the valuation is accurate. Some of these characteristics include:

  • The target company in question must deal in the goods and services of the same type for better comparison.
  • The range of revenue and profits must be the same. Discrepancies may not lead to reliable comparisons or valuations.
  • The period of comparison is important as well. Recent trends and timings help figure out a more accurate comparative valuation.

The location of the entities the transactions of which are being compared should belong to the same location. Following the above traits before evaluating company precedents will assure acquisition companies of paying a legible amount for the target company.

How To Calculate?

The obvious question is how financial analysts calculate this multiple. It has two answers. One is short, and another is long.

In short, it’s all dependent on how they identify similar businesses and look at their recent M&A deals. And depending on that, they value the target company.

The long answer is a little more detailed. Let’s elaborate step by step.

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Transaction Multiples Valuation Video

Step 1 – Identify the Transaction

We can identify the transaction using the following sources –

  • Company Websites – Go through the comparable company’s press releases and recent activities section. Go through the other general strategy sections to see the transactions which the company discusses most.
  • Industry Websites – You can also refer to industry websites like, which contains almost all the deals from various sectors.
  • Bloomberg CACS – If you have access to the Bloomberg terminal, you can also check out the CACS section of the comparable companies.

 Step 2 – Identify the right multiples.

For having more clarity on the same, look at the following factors –

Step 3 – Calculate the Transaction Multiple Valuation

You need to consider three multiples while looking for similarities in previous transactions. These multiples may not give a very accurate picture of the business, but these multiples will be conclusive enough to make a decision.


Let us consider the following example to understand the topic in a better way:

Below are the acquisition details of the comparable acquisitions.

DateTargetValue of Transaction (in $ million)BuyersEV/EBITDAEV/SalesEV/EBIT
05/11/2017Crush Inc.2034Hands down Ltd.7.5X1.5X12X
08/09/2017Brush Co.1098Doctor Who Inc.10X2.5X15X
03/06/2017Rush Inc.569Good Inc.8.5X1.9X17X
10/04/2017Hush Ltd.908Beats & Pieces Ltd.15X1.1X11X

You need to screen the right transactions and filter out the rest. How would you do that? You would look at the company profiles and understand the transactions closely, and they will only choose the ones that fit the bill.

Then, you would use the right multiples (in this case, we used three) and apply the acquisition multiples to the target company you’re trying to value.

Next, you would value the company by using the right acquisition multiples.

  • First, you would look at the range of the acquisition multiples – are they high or low.
  • And depending on that, the valuation would be done. And we would have a low range and a high range valuation.
  • It would be best if you did this for all comparable transactions. And then finally, we will create a chart to find out the common thread.
  • If the right acquisition multiple for your company is EV/EBITDA, the average of 10.25x will apply to the target company.


Transaction Multiples Valuation is a method with the help of which a target company for M&A is evaluated so that investors or buyers know how much they should reasonably pay.

Let us check out the benefits of using this valuation metric:

  • Anybody can access the information available; because it’s public.
  • Since the valuation is based on range, it is much more realistic.
  • Since you’re looking at different players, you can understand their strategies.
  • It also helps you understand the market better.


Besides multiple advantages, the process also has some flaws, which one must be aware of. Listed below are some of the limitations of this metric:

  • While valuing the target company, individual biases would come into place; no one can avoid them.
  • Even if various factors are considered, there are still many more factors that are not considered.
  • Even if the deals are compared, no deal can be the same. There would be one or more factors that would be different.

Frequently Asked Questions (FAQs)

1. What are the applications of transaction multiples?

Transaction multiples are widely used in the valuation of companies during mergers and acquisitions (M&A) transactions. They provide insights into the pricing and value of a target company based on similar historical deals. Transaction multiples help potential acquirers gauge whether the proposed deal is reasonable and aligned with past market trends.

2. What is the relevance of transaction multiples?

Transaction multiples offer a practical benchmark for valuing a company in the context of M&A activities. They allow buyers and sellers to assess the fairness and attractiveness of a deal by comparing it to past transactions within the same or related industries. This relevance assists in informed decision-making during negotiations.

3. Are trading or transaction multiples higher?

Generally, trading multiples tend to be higher than transaction multiples. Trading multiples, such as price-to-earnings (P/E) ratios, reflect the market’s perception of a company’s future growth and potential, often resulting in higher valuations. Based on historical M&A deals, transaction multiples may incorporate conservative considerations and specific deal dynamics, leading to comparatively lower valuations.

This has been a guide to what is Transaction Multiples Valuation. Here, we explain how to calculate it along with an example, advantages & disadvantages. You may also learn more about valuation from the following articles –