How far back should one typically look for precedent transactions in financial analysis?

In financial analysis, looking back 2-3 years for precedent transactions is a sound practice because it balances the need to reflect recent market sentiment while also capturing relevant transaction activity. This time frame allows analysts to consider how current economic conditions, industry trends, and market dynamics influence deal valuations and strategic decision-making.

This period is long enough to include sufficient data to understand how similar transactions were valued but also recent enough to remain relevant to current market conditions. Deals made too far back, like over five years ago, might not reflect the current economic climate or recent changes in investor behavior. Conversely, focusing on a period as short as 3-6 months may lead to an incomplete picture that misses broader market trends and the potential impact of cyclical shifts.

Thus, the choice to analyze transactions over 2-3 years effectively captures an appropriate balance of historical relevance and present-day context, making it a justified period for comprehensive financial analysis.