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Because pre money does not include the new capital that is being raised so it is innacurate. Post money reflects the dilution from the cap raise.
How can EV change as a result of equity injection? It stays the same as determined by comps or by DCF - whatever you prefer. New injection of cash impacts net debt and therefore equity value, but EV is not changed.
Similarly, equity injection per se doesn't impact EBITDA (unless this cash is invested in EBITDA-Accretive initiatives).
So pre-money and most-money EV/EBITDA should be the same for any business.
Or am I misunderstanding the question?
So a company raises capital, a group of equity investors, who require appropriate return, have given this company capital to do what? To expressly and exclusively put it in an account and earn paltry interest?
You say the EV doesn't change and it should be determined by the comps and DCF. How would your DCF change? One example is they use the cash to pay down debt, this could lead to the company having greater cash flow available to invest and promote growth from saved interest / enable them to reduce the cost of remaining debt; or could be a rescue financing where the current price of equity is factoring in default risk, post equity injection for debt paydown that risk is no longer; or it could alter the D:E ratio with the higher costs of capital of equity leading to a higher discount rate and lower value; or it could be used for an acquisition where the return on capital is above the cost of equity; or do we not trust management and they're going to waste the money and distract themselves from more important projects......either way, to say that your EV is not affected is rooted in this formulaic mentality of EV = Equity + Net Debt where people don't realise / think about what drives equity value.
Even with your comps, you wouldn't apply the same range as before, you probably used the comp growing at 10% as you top end (may have been organic or inorganic, lets ignore that for now) as your target was growing at 2%, but with new capital....?
Thanks for the detailed reply - gave me some insiration.
You are of course correct - new equity capital helps on many fronts - reduction of debt cost, additional growth. So basically what you are saying is: if you raised new equity, you need to adjust your model, incorporate more growth, revise assumptions, which will result in higher EV. But this is correct even without any equity injection - revision of model assumptions and drivers results in different EV, no point in discussing this.
The question of the topic starter is, I feel, about pre-money / post-money calculation methodologies / theory which doesn't assume revision of the model (because it is a completely separate issue). From methodological point of view (not business point of view), EV and EV/EBITDA do not change as a result of equity injection.
Also, any foreseebaly equity contributions should be in your model to start with (just as equity distributions), so even after equity raise you don't necessarily adjust your model - only if your previous one was dated.
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