# Lecture 13: Precedent Transactions Analysis — Practice Exercises Guide **Course:** Financial Modeling | MBA Term 3 **Session:** 13 of 30 **Duration:** 3 hours (Lecture + Lab) **CILO Alignment:** CILO 1, CILO 3 --- ## 📥 Required Files Download the following CSV files before starting: | File | Description | |------|-------------| | `lecture-13-precedent-transactions-practice.csv` | **Main practice file** — Implied EV & multiples columns left blank for you to calculate | | `lecture-13-premium-analysis.csv` | Premium & synergy data for Exercise 3 | | `lecture-13-precedent-transactions.csv` | Complete reference data (check your answers) | --- ## 🏋️ Exercise 1: Calculate Implied Enterprise Value & Transaction Multiples (30 min) ### Objective Build a complete precedent transaction multiples table from raw deal data. ### Instructions Open `lecture-13-precedent-transactions-practice.csv` in Excel. The following columns are left blank for you to fill: - **Implied EV (₹ Cr)** - **EV/Revenue (x)** - **EV/EBITDA (x)** - **P/E (x)** ### Step-by-Step | Step | Column | Excel Formula | |------|--------|---------------| | A | Implied EV | `= [Transaction Value] + [Target Net Debt]` | | B | EV/Revenue | `= [Implied EV] / [Target LTM Revenue]` → format as "0.0x" | | C | EV/EBITDA | `= [Implied EV] / [Target LTM EBITDA]` → format as "0.0x" | | D | P/E | `= [Offer Price Per Share] / ([Target LTM Net Income] / [Shares Outstanding])` → format as "0.0x" | | E | Median | At bottom of each column: `=MEDIAN(range)` | ### ✅ Check Your Answers Compare your completed table against `lecture-13-precedent-transactions.csv` (the reference file with all values pre-calculated). **Expected Median Values:** - Median EV/Revenue: **2.4x** - Median EV/EBITDA: **9.0x** - Median P/E: **15.1x** --- ## 🏋️ Exercise 2: Value a Target Company Using Precedent Multiples (30 min) ### Objective Apply precedent transaction multiples to value a hypothetical pharma company. ### Target Company: MedCore Therapeutics | Financial Metric | Value | |-----------------|-------| | LTM Revenue | ₹3,800 Cr | | LTM EBITDA | ₹920 Cr | | LTM Net Income | ₹510 Cr | | Net Debt | ₹650 Cr | | Shares Outstanding | 20.0 Cr | | Current Market Price | ₹310/share | ### Tasks **Task A — EV/EBITDA Method (Median = 9.0x)** 1. Calculate Implied EV 2. Calculate Implied Equity Value (EV − Net Debt) 3. Calculate Implied Share Price (Equity Value ÷ Shares Outstanding) **Task B — EV/Revenue Method (Median = 2.4x)** 1. Calculate Implied EV 2. Calculate Implied Equity Value 3. Calculate Implied Share Price **Task C — P/E Method (Median = 15.1x)** 1. Calculate LTM EPS (Net Income ÷ Shares) 2. Calculate Implied Share Price (EPS × P/E) 3. Calculate Implied Equity Value 4. Calculate Implied EV (Equity + Net Debt) **Task D — Compare to Market** - Compare each implied price to MedCore's current market price of ₹310/share - Calculate the premium/discount for each method - Is MedCore undervalued or overvalued? **Task E — Synergy Analysis** - If a potential acquirer expects synergies of ₹400 Cr, what is the maximum EV/EBITDA multiple they could justify paying? ### ✅ Expected Answers

🔑 Click to reveal Task A solution

``` Implied EV = ₹920 Cr × 9.0x = ₹8,280 Cr Implied Equity Value = ₹8,280 Cr − ₹650 Cr = ₹7,630 Cr Implied Share Price = ₹7,630 Cr ÷ 20.0 Cr = ₹381.50/share ```

🔑 Click to reveal Task B solution

``` Implied EV = ₹3,800 Cr × 2.4x = ₹9,120 Cr Implied Equity Value = ₹9,120 Cr − ₹650 Cr = ₹8,470 Cr Implied Share Price = ₹8,470 Cr ÷ 20.0 Cr = ₹423.50/share ```

🔑 Click to reveal Task C solution

``` LTM EPS = ₹510 Cr ÷ 20.0 Cr = ₹25.50/share Implied Share Price = ₹25.50 × 15.1x = ₹385.05/share Implied Equity Value = ₹385.05 × 20.0 Cr = ₹7,701 Cr Implied EV = ₹7,701 Cr + ₹650 Cr = ₹8,351 Cr ```

🔑 Click to reveal Task D solution

``` EV/EBITDA: ₹381.50 (23.1% premium to market) EV/Revenue: ₹423.50 (36.6% premium to market) P/E: ₹385.05 (24.2% premium to market) Result: MedCore is UNDervalued at ₹310/share. All three methods suggest a value range of ₹382-₹424/share. ```

🔑 Click to reveal Task E solution

``` With ₹400 Cr synergies, combined EBITDA = ₹920 + ₹400 = ₹1,320 Cr Max EV = ₹1,320 Cr × 9.0x = ₹11,880 Cr Max EV/EBITDA (on standalone) = ₹11,880 ÷ ₹920 = 12.9x The acquirer could justify paying up to 12.9x standalone EBITDA. ```

--- ## 🏋️ Exercise 3: Control Premium Analysis (25 min) ### Objective Analyze control premiums and synergy-to-premium ratios across the deal universe. ### Instructions Open `lecture-13-premium-analysis.csv` and complete: | Task | Description | Formula | |------|-------------|---------| | A | Verify Market Cap Pre-Deal | `= Unaffected Price × Shares Outstanding` | | B | Verify Transaction Equity Value | `= Offer Price × Shares Outstanding` | | C | Recalculate Control Premium % | `= (Offer Price − Unaffected Price) / Unaffected Price` | | D | Synergy-to-Premium Ratio | `= Synergies / (Txn Equity Value − Market Cap Pre-Deal)` | | E | Identify patterns | Which acquirer type pays highest/lowest premiums? | ### ✅ Expected Answers

🔑 Click to reveal Synergy-to-Premium Ratios

| Target | Premium Paid (₹ Cr) | Synergies (₹ Cr) | Ratio | |--------|---------------------|-------------------|-------| | Cipla Health | 2,000 | 1,200 | 0.60x | | Mankind Block | 1,800 | 1,800 | 1.00x | | Alembic (API) | 750 | 600 | 0.80x | | Lupin (Brazil) | 904 | 950 | 1.05x | | Gland Pharma | 1,104 | 1,100 | 1.00x | | Biological E. | 660 | 700 | 1.06x | | J.B. Chemicals | 790 | 900 | 1.14x | | Marksons | 500 | 500 | 1.00x | | Strides (OSD) | 504 | 650 | 1.29x | | Intas (Sterile) | 798 | 800 | 1.00x | **Key Observations:** - Strategic acquirers pay higher premiums (18-31%) - PE firms pay lower premiums (12.4%) - Most synergy-to-premium ratios are ≥ 1.0x

--- ## 🏋️ Exercise 4 (Advanced): Football Field Valuation Range (25 min) ### Objective Create a "football field" chart combining multiple valuation methodologies. ### Instructions 1. Calculate 25th and 75th percentile EV/EBITDA from the precedent data using `=PERCENTILE(range, 0.25)` and `=PERCENTILE(range, 0.75)` 2. Derive implied share price ranges 3. Add the following assumed ranges: - **DCF Valuation:** ₹340 − ₹420 per share - **Trading Comps:** ₹310 − ₹380 per share 4. Create a horizontal stacked bar chart in Excel: - First series = Low value (set to transparent/no fill) - Second series = Range width (High − Low, colored bars) - Add a vertical line at MedCore's current price (₹310) ### ✅ Expected Answers

🔑 Click to reveal Football Field data

``` 25th Percentile EV/EBITDA = 8.55x 75th Percentile EV/EBITDA = 9.65x Precedent Low: ₹920 × 8.55x = ₹7,866 → Equity ₹7,216 → ₹360.80/share Precedent High: ₹920 × 9.65x = ₹8,878 → Equity ₹8,228 → ₹411.40/share ┌───────────────────────────────────────────────────────┐ │ Methodology Low High Current ₹310 │ ├───────────────────────────────────────────────────────┤ │ DCF Valuation ₹340 ₹420 │ │ Trading Comps ₹310 ₹380 │ │ Precedent Transactions ₹361 ₹411 │ ├───────────────────────────────────────────────────────┤ │ Overlap Zone ₹361 ₹380 ← CONSENSUS │ └───────────────────────────────────────────────────────┘ Conclusion: Consensus range ₹361-₹380/share. At ₹310, MedCore trades at a 16-22% discount. ```

--- ## 📝 Self-Assessment Rubric | Criteria | Exceeds (80%+) | Meets (55-79%) | Below (<55%) | |----------|----------------|----------------|--------------| | **Multiple Calculation** | All multiples correct with proper formatting | Most multiples correct | Multiple errors in formulas | | **Target Valuation** | All 3 methods correct + insightful comparison | 2 of 3 methods correct | Only 1 method attempted | | **Premium Analysis** | Ratios computed + insightful patterns identified | Ratios computed correctly | Unable to compute ratios | | **Football Field** | Chart created + clear consensus range | Chart attempted, data correct | Not attempted or incorrect | --- ## 📚 Additional Resources - **Rosenbaum & Pearl**, *Investment Banking*: Chapter 5 (Comparable Company Analysis) & Chapter 6 (M&A) - **McKinsey**, *Valuation*: Chapter 9 (Multiples-Based Valuation) - **Damodaran**, *Online Valuation Tools*: [Damodaran Online](https://pages.stern.nyu.edu/~adamodar/) - **SEBI Takeover Regulations**: For understanding Indian M&A premium norms --- *© 2026 Financial Modeling Course | Woxsen University | MBA Term 3*