The analyst should be careful not to mechanically add an acquisition premium to the target firm's estimated value based on the comparable companies' method if there is evidence that the market values of these "comparable firms" already reflect the effects of acquisition activity elsewhere in the industry.

Question

Quizplus · Accepted Answer

The analyst should be mindful of the fact that the market values of comparable companies may already include an acquisition premium due to activity elsewhere in the industry. Therefore, it would be inappropriate to mechanically add another acquisition premium to the target firm's estimated value without proper consideration of this fact.

The Analyst Should Be Careful Not to Mechanically Add an Acquisition