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When buying a house, computing the sale price can be as simple as discovering what other properties on the street fetched. What did someone else actually spend? Likewise, when selling a public company, precedent transaction multiples can be equally compelling. So it is surprising to see that JPMorgan and Evercore Partners, the financial advisers to Dell's special committee, did not include any precedent multiples in their fairness opinion memos.
These memos usually include several valuation methodologies. But precedent transaction analysis can be crucial as it reflects buyers paying extra for a control premium. Trading multiples and discounted cash flow are standalone valuations and will not account for control.
The investment bankers could have judged that the relevant transactions (eg. Hewlett-Packard/Compaq, Lenovo/IBM, Acer/Gateway, HP/Palm) are inappropriate comparisons because those involved large strategic buyers who could pay more due to synergies or that the target companies were in a different strategic position than Dell is in currently. These are reasonable points. However, the bankers were still able to include (and caveat) comparable companies for trading multiples analysis and previous transactions for historical premiums paid. (In fact, it seems that premiums in most other transactions would not be for stocks in steady decline as is the case for Dell.)
The bankers could have simply offered similar caveats when including previous deals. Of course, the more cynical interpretation is that these multiples would have been unhelpful in building the case for $13.65 a share. And with a 270-page proxy there are plenty of other things for shareholders to chew on.