What are the main pros and cons of precedent transactions analysis?

Pros: based on actual prices buyers really paid (real deals, not just quotes); captures a control premium, so it's especially relevant when valuing a company for an acquisition. Cons: past deals reflect the market and financing conditions of THEIR time, which may differ from today; truly comparable transactions are scarce, especially in niche sectors; data can be limited or stale (private deals disclose little); each deal has unique circumstances (competitive auction, distressed seller, strategic premium) that don't generalize; tends to overstate value in a 'normal' (non-takeover) context because of the embedded premium.

⚠ Common wrong answer: "Precedents are the most reliable method because they're prices buyers actually paid." Why it fails: Real prices, yes — but paid for CONTROL, often with synergies, in the financing conditions of their moment. For a standalone fair value today they are systematically too high, which is why the embedded premium is a con, not a pro.