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guideline M&A transaction method is similar to the guideline public company method discussed earlier.
Each of the steps in the guideline public company method is relevant to the M&A transaction method
and should be applied to the extent possible, given the availability of information.

Finding merger and acquisition data tends to be considerably more complicated than finding guideline
public company information. No single comprehensive source of transaction data exists. Thus, it often
becomes necessary for the analyst to consult numerous sources.

One challenge relating to the guideline M&A transaction method is finding sufficient reliable data. It is
often difficult not only to find similar companies that have been acquired but also to find sufficient data
on these acquisitions should they be identified. Frequently, the transactions take place between two pri-
vate companies where little to no information is publicly available. In these cases, the information pro-
vided to the public is only the information that the acquirer and acquired company choose to share. Fur-
thermore, there is no ability to validate the information. Often business brokers will disseminate the
transaction information on a sanitized basis, but there is usually little guidance regarding the details,
such as whether the purchase price included assumed debt and other important terms. If the transaction
involved a publicly traded company as either the buyer or seller, more robust information may be avail-
able. When information like this is available, practitioners should review the target or acquirer’s SEC
filings to verify the transaction multiple. Do not blindly rely on commercial databases for this infor-
mation. Often databases that report these transaction multiples contain errors that, if left unchecked, can
significantly misstate the multiples and the corresponding value estimate. The thorough practitioner will
perform an extensive quality control check of the data cited by the database. Even when the data are
available, it is often extremely difficult to interpret what exactly was exchanged in the transaction. Deci-
phering exactly which assets were purchased, what debts were assumed, and how these factors affect the
reported multiple is often the most difficult aspect of implementing this method.

The multiples calculated from guideline M&A transactions may represent fair market value or invest-
ment value. Acquisition prices often reflect a premium for synergies created as part of the merger by a
strategic buyer (see exhibit 1 in chapter 7 of this practice aid). If a financial buyer, which cannot realize
synergies through the transaction, is the acquirer, the value indication is often considered to be reflective
of fair market value. If a strategic buyer is involved in the purchase, a premium on the fair market value
may result, which should be considered when identifying comparable transactions or companies.

Subject Company Transaction Method

Outside of the guideline public company method and the guideline M&A transaction method, prior
transactions involving the subject company’s stock can be helpful in determining value. If shares in the
subject company itself changed hands in a period reasonably close to the valuation date, and the sale is
representative of an arm’s-length transaction, it may provide an indication of value. The multiple from
the observed transaction should be treated the same way as any multiple derived from the guideline pub-
lic or similar transactions methods. In particular, the practitioner should consider the application of ad-
justments to the derived multiples to reflect material changes in economic and or industry conditions,
and any adjustments should be consistently applied to the correct subject company income measure-
ment. Adjustments should be considered for changes in the subject company’s financial condition or
outlook. This consideration may be especially relevant for a company in distress if the transaction took
place while the company was financially healthy (or was perceived to be healthy). Similarly, transac-
tions in the company’s securities during a period of distress may need to be adjusted if the company’s
situation has improved (due to a restructuring, for example). Moreover, the "arm’s-length" nature of any
transactions negotiated during a period of distress should be carefully examined for the impact of poten-

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