Chapter 7 - Analysis of Past Transactions

7.1. What is an Analysis of Past Transactions?

An APT (Analysis of Past Transactions) is based on acquisitions of listed and private companies, which are comparable to the target being valued. If these acquisitions result in a change in shareholders control, then a control premium is also accounted for in the analysis. The shareholder capital transfer for the acquisition must be higher than 50% of total equity capital which, as a rule, ensures control. The APT excludes acquisition of minority shareholder capital. This method is best applied in the analysis of a possible acquisition, when the company is studying what are the most aggressive companies in its sector in terms of M&A and to identify multiples in previous transactions to facilitate the negotiation for the acquisition.

Advantages and Disadvantages

Advantages: The APT analysis is based on Public Information Reflects premiums of control in real situations (as opposed to projected premiums) The APT method is best applied when the impact of the economic cycle is isolated It provides perspective on possible strategic changes in the sector

Disadvantages: Public information may be limited or not accurately reflecting business conditions Context that led to the payment of a premium: Assets with a value of "rarity" Financial or strategic investor Acquisition of company that was undergoing restructuring

Market conditions at the time of acquisition may influence the analysis

7.2.

How is an APT structured?

Identify Comparable Transactions

To perform an APT, the transactions selected for the analysis must be truly comparable to company being analysed. The transactions must be from a company in the same sector, with approximately the same size. It must reflect all the information available about those transactions and the timing of the transaction must be analysed. Moreover, the transaction should not be pending completion. The criteria for choosing the precedent transactions to be included in the analysis are depicted the table below. Table 1 - Comparable Companies Criteria Relevance Does the transaction result in a change of control? Is the company that performs the transaction comparable to the target? Are the economic conditions similar? Dimension Eliminate all transactions that do not correspond to the size of the company being Information Include only transactions in which the relevant Business Private companies: is if not

information

information is disclosed and is reliable.

available, do not include in the analysis.

analysed.

Is the transaction made in shares or in cash?

Gather Relevant Information

Databases such as SDC, Teradata, CapitalIQ and Mergermarket that provide data that is already prepared for analysis. It is recommended to use annual reports in the

analysis, and if the data is not available in the general databases, the information can be acquired in the general and economic (business) press. The criteria used to gather information for an APT is broadly the same as the Analysis of Comparable Companies, presented in the previous chapter.

Conclusions of the Analysis

As with other previous analysis, verifying information on the company and industry is necessary to complement the overall analysis and give context to the numbers.

The analyst also has to understand the effect of economic conditions and the context of the transaction: sale of company restructuring, rare assets, synergies, hostile takeovers as well as all the factors that may have influenced the transaction price.

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