Why can precedent transaction multiples be used without discounting for liquidity?

Precedent transaction multiples provide a contextual framework for valuing a company based on the prices paid in past transactions for similar companies. The key aspect of using these multiples without adjusting for liquidity is that they reflect the entirety of the acquisition, including the control premium that a buyer is willing to pay for securing 100% ownership of the target company. This premium covers not just the value of the underlying assets but also intangible factors like control, synergy potentials, and market positioning.

When analyzing past transactions, the prices represent the actual costs paid by acquirers and are often derived from fully negotiated deals. Buying a company involves risks and benefits that are factored into the final transaction value, hence these multiples are indicative of the company's total worth as it was sold in that specific context. As a result, there isn't a need to discount for liquidity since the price already encompasses the necessary liquidity considerations that both buyers and sellers would have to account for at the time of the deal.

This contrasts with other valuation methods that might need liquidity adjustments because they don't involve the same comprehensive acquisition context or are based on trading values of public companies, which could fluctuate and miss out on hidden premiums not reflected in general trading patterns.