How do you calculate valuation multiples for a Precedent Transaction involving an 80% acquisition?

The correct approach to calculate valuation multiples for a Precedent Transaction involving an 80% acquisition is to use the selling company's total value for multiples. This is grounded in the principle that valuation multiples should reflect the entire value of the company being bought, not just the portion acquired.

In the context of an 80% acquisition, the valuation multiples typically derive from the entire enterprise value of the selling company, which encompasses both equity and debt. This allows an analyst to gain a clearer picture of how the acquired company is valued in the market, rather than limiting the perspective to just the 80% ownership acquired. By focusing on the entire value, analysts also account for financial implications and capital structure that might influence the overall valuation, promoting a more accurate comparison with similar transactions.

Using just the purchase price would overlook the context of the entire company’s worth, while focusing solely on the 80% purchased value or equity value might ignore critical aspects of the transaction such as debt obligations and operational scale. Thus, considering the total value of the selling company provides a more holistic understanding of the transaction's value.