What is considered an appropriate time frame for looking back at precedent transactions?

When assessing precedent transactions, a time frame of 2-3 years is generally considered appropriate because it strikes a balance between reflecting recent market conditions while still providing a comprehensive view of transaction history relevant to the valuation.

Within this 2-3 year window, the transactions should be recent enough to capture current market trends, industry developments, and shifts in investor sentiment. This time frame also helps to ensure that the valuations reflect the latest business fundamentals and economic climate, which can significantly influence deal pricing and structures.

Looking back 1-2 years may be too short, as it might not encompass enough data to provide a reliable average or understanding of valuation metrics, while extending the window to 3-4 years may begin to incorporate outdated conditions that no longer represent the current market dynamics. A period longer than 5 years could lead to a set of transactions that may no longer be relevant, as the market landscape can change dramatically within a few years due to economic cycles or regulatory changes. Therefore, the 2-3 year timeframe effectively captures a pertinent and realistic snapshot of the market for making comparisons in precedent transactions.