Recently, for an M&A assignment I did an analysis of precedent transactions for NetSuite’s acquisition by Oracle. A precedent transactions analysis is designed to imply a value of a company based on publicly available financial terms and premiums paid for carefully selected transactions from the M&A ‘universe’. The comparable transactions must share basic characteristics with the acquisition such as common industry, markets targets operated in, market capitalization and similar product lines. In connection with my analysis, I compared publicly available statistics for select software sector transactions with a value of greater than $500 million occurring between January 1, 2010 and December 1, 2012.

The deals selected for analysis were Rightnow Technologies, Taleo Corporation, Eloqua and Art Technology Group acquired by Oracle, and SuccessFactors acquired by SAP AG.

For each transaction listed above, I noted the following financial statistics, where available:

1. implied premium to the acquired company’s closing share price on the last trading day prior to announcement (or the last trading day prior to the share price being affected by acquisition rumors or similar merger-related news)
2. implied premium to the acquired company’s 30 trading day average closing share price prior to announcement (or the last trading day prior to the share price being affected by acquisition rumors or similar merger-related news)
3. implied premium to the acquired company’s 60 trading day average closing share price prior to announcement.

The table summarizing multiples and LTM profitability benchmarks is listed here:

Based on the analysis of the relevant metrics and time frame for each of the transactions listed above, and further analysis of the relevant metrics for each of the transactions listed above, I selected representative ranges of implied premia and financial multiples of the transactions and applied these ranges of premia and financial multiples to the relevant financial statistic for NetSuite. The following table summarizes the analysis:

I also noted the price per share of NetSuite implied by median and top quartile statistics of the software as a service precedent transactions. The following table summarizes my findings:

I noted that the median premia for all of the precedent transactions to the 1-day prior closing share price, 30-day average closing share price and 60-day average closing share price were 31%, 30% and 33%, respectively. I also noted that the closing stock price of NetSuite on 5/18/2013 was $94.30 per share.

No company or transaction utilized in the precedent transactions analysis is identical to the acquisition under analysis. In evaluating the precedent transactions, I made judgments and assumptions with regard to industry performance, general business, market and financial conditions and other matters, which are beyond my control, such as the impact of competition on the business or the industry generally, industry growth and the absence of any adverse material change in the target’s financial condition or the industry or in the financial markets in general, which could affect the public trading value of the companies and the aggregate value and equity value of the transactions to which they are being compared.