cash free / debt free basis

Mezz, your seriously saying you don't need to calculate the enterprise value for a private company valuation?

"Cowards die a thousand deaths, but the brave only one," Bill Shakespeare

righton:

Westfald, calculating enterprise value for a private company is the same as calculating its value on a cash free / debt free basis.

In other words, you need to know a company's enterprise value to know what the deal would look like on a cash free / debt free basis.

So what Mezz said is consistent with the article you posted.

Yeah thats what I thought, I don't know what the discrepancy was over. I'm a week out of training so whatever.

"Cowards die a thousand deaths, but the brave only one," Bill Shakespeare

righton:

Mezz, I'm not sure if I'm misinterpreting your last post, but enterprise value IS THE SAME as value based on a cash free / debt free basis...

I think thats what westfald was trying to get at by mentioning TEV.

As you stated, it presents value irrespective of capital structure.

it was an answer to wesfald as his original answers to the posters question made no sense... eventually he mentioned EV and a cahs/debt free but in a mutually exclusive fashion.. that's what my post was answering...

yea, you wipe them off as you proforma the balance sheet after acquisition...

the cash you can create a toggle that allows u to either, use it in the deal or wipe it off as if it was taken out...

the debt is wiped off unless you know it will be rolled over (change of control clauses)...

when you compute the net asset value with the target balance sheet, you can already have it stripped or you just exclude the cash & debt from the NAV calc.

well, you've just got to think of it conceptually as if it was happening 5 years into the deal and you realize:

if debt is greater than cash, you net out the debt leaving zero cash and then you need to wipe the debt out.. so since you cant do that in the inc. statement, you've got to do it thru the cashflow statement.. so that means you need to inject equity to do so raising you equity amount by the decrease in debt (zero sum diff)...

If cash is bigger than debt, you eliminate debt and think how a company can get rid of cash through its statements... well that means a dividend which reduces net income to common which impacts retained earnings meaning any cash balance reduces the equity thru retained earning by an equal amount...

at the end of the day, your goodwill is the same as the net asset value stays the same when you adjust it... you're just reallocating the resources as if the company ran normally in a one time adjustment to pf it...

The "cost" of the seller paying of the debt will be reflected in the buyer's purchase price.

In other words, the buyer will pay a higher price to structure the deal on a cash free / debt free basis.

If the debt was not repaid, but instead assumed by the buyer, the purchase price would reflect this by being lower.

my explanation is targeted purely at how you debt free / cash free the pro forma, pre acquisition target balance sheet...

there are quite of rules you need to apply for the post acquisition pro forma balance sheet and eliminating cash and debt are tehe simplest of things to worry about...

I would really appreciate it if you can tell me what would you adjust in the balance sheet post acquisition for debt free / cash free. I am building out the model now, but I don't know what the balancing entries would be. As I said, the exiting shareholders are paying for the debt, so no need raise equity to pay for it.

In a cash free / debt free deal, the target would get the $200 m and keep the $50 m in cash.

This would represent its "equity value."

Keep in mind, depending on the deal structure, the target may not always be allowed to keep the cash post-deal.

Here are the figures:

Acq. Co. -12 Cash $129 CA (including cash) $780 Total Assets $42 CL $370 LT Debt (existing) $368 SE

Seller $27 cash $98 total CA $380 total assets $145 CL $145 LT Debt $900 SE

So for LT Debt, I would net out $250m and $145m existing debt. And for cash, net -12 and -27, right?

Or would cash adjustment be the amount used in the acquisition $380-250?

Also, this is an asset sale (private company), so would $380 be the EV and not the equity value?

It would be the EV or Transaction Value. Cash should be acquisition proportion amount if I'm understanding correctly.

Here is the model guyz. Please help.

http://www.filedropper Dot com/wsohelpmexls

First link isn't working

http://www11.zippyshare Dot com/v/43999726/file.html

use the revolver for a negative cash balance and that will add up on debt

x.:

use the revolver for a negative cash balance and that will add up on debt

Yea, so would I make the revolver a plug?

This is your link?

http://www11.zippyshare.com/v/43999726/file.html

Yes, that is it. Anyone?

Remember that this is an asset sale, not a stock sale.

bump, pls help me guys!

ibprospect29:

bump, pls help me guys!

chill u askin 4 help b rsplctful

mudkipz:

ibprospect29:

bump, pls help me guys!

chill u askin 4 help b rsplctful

huh?

(correct me if i'm wrong) How did you determine that the EV= 380?. I don't see a "Sources & Uses" table in your model ? you need that to determine the total price and to tie everything in. if you are to net out the debt, you need to have "refinanced debt" on your sources side,

633268:

(correct me if i'm wrong) How did you determine that the EV= 380?. I don't see a "Sources & Uses" table in your model ? you need that to determine the total price and to tie everything in. if you are to net out the debt, you need to have "refinanced debt" on your sources side,

B/c the buyer is paying $380 for the business via an asset sale. So basically, paying for 1x the assets. But, they are only funding it with $250m of debt. So, I plugged in the remaining from cash, from which the $130m remaining I am going to pull from existing equity (retained earnings from the buyer). Is that right?

I'm not trying to find the value, the purchase price was given to me.

if the purchase price is given, I assume it is just the equity purchase price. normally, the buyer needs more than just the equity purchase price due to transaction fees/ financing fees...etc. however,if 380 is the EV. then , your "Sources & Uses" table needs to be equal to $ 380 on each side. Why do you net out buyer's existing debt since the buyer will eventually pay it off ? as I mentioned before, if you are gonna net out seller's existing debt, you would need more than 380 to pay for the deal. and you need to have " refinanced debt" on your Uses side. basically, like this,

1) if debt assumed Sources: buyer cash+Revolver:1.3 ( is seller going to finance it as well or ??) new debt: 2.5 assumed debt:1.45

Uses: assumed debt:1.45 equity purchase price 3.8

2) if debt refinanced Sources: Buyer cash+revolver (plug in) New debt:2.5

Uses: refinanced debt (to net out seller's existing debt): 1.45 equity purchase price :3.8

633268:

if the purchase price is given, I assume it is just the equity purchase price. normally, the buyer needs more than just the equity purchase price due to transaction fees/ financing fees...etc. however,if 380 is the EV. then , your "Sources & Uses" table needs to be equal to $ 380 on each side. Why do you net out buyer's existing debt since the buyer will eventually pay it off ? as I mentioned before, if you are gonna net out seller's existing debt, you would need more than 380 to pay for the deal. and you need to have " refinanced debt" on your Uses side. basically, like this,

1) if debt assumed
Sources:
buyer cash+Revolver:1.3 ( is seller going to finance it as well or ??)
new debt: 2.5
assumed debt:1.45

Uses:
assumed debt:1.45
equity purchase price 3.8

2) if debt refinanced
Sources:
Buyer cash+revolver (plug in)
New debt:2.5

Uses:
refinanced debt (to net out seller's existing debt): 1.45
equity purchase price :3.8

Thx for the response. Since this is an asset sale, I thought $380 would be used to buy the assets. If $380 is used to buy the assets (1x BV of assets), then shouldn't the equity value be less than $380 since A = L + SE? To find the equity value I took the transaction value and subtracted out net debt (less debt + cash).

ibprospect29:

633268:

if the purchase price is given, I assume it is just the equity purchase price. normally, the buyer needs more than just the equity purchase price due to transaction fees/ financing fees...etc. however,if 380 is the EV. then , your "Sources & Uses" table needs to be equal to $ 380 on each side. Why do you net out buyer's existing debt since the buyer will eventually pay it off ? as I mentioned before, if you are gonna net out seller's existing debt, you would need more than 380 to pay for the deal. and you need to have " refinanced debt" on your Uses side. basically, like this,

1) if debt assumed
Sources:
buyer cash+Revolver:1.3 ( is seller going to finance it as well or ??)
new debt: 2.5
assumed debt:1.45

Uses:
assumed debt:1.45
equity purchase price 3.8

2) if debt refinanced
Sources:
Buyer cash+revolver (plug in)
New debt:2.5

Uses:
refinanced debt (to net out seller's existing debt): 1.45
equity purchase price :3.8

Thx for the response. Since this is an asset sale, I thought $380 would be used to buy the assets. If $380 is used to buy the assets (1x BV of assets), then shouldn't the equity value be less than $380 since A = L + SE? To find the equity value I took the transaction value and subtracted out net debt (less debt + cash).

Yeah, in this case, I think it is similar to equity value, the concept, yet it is not exactly the same, it is like a lump-sum purchase price. But, anyway, that's how the S&U table works. you should be able to make the balance sheet balanced.

633268:

Yeah, in this case, I think it is similar to equity value, the concept, yet it is not exactly the same, it is like a lump-sum purchase price. But, anyway, that's how the S&U table works. you should be able to make the balance sheet balanced.

That is what I'm trying to figure out. I was told they are going to pay the 150 in cash, but they have no cash. And realistically, they can't fund it all through debt (revolver + TL), so what is the solution?

ibprospect29:

633268:

Yeah, in this case, I think it is similar to equity value, the concept, yet it is not exactly the same, it is like a lump-sum purchase price. But, anyway, that's how the S&U table works. you should be able to make the balance sheet balanced.

That is what I'm trying to figure out. I was told they are going to pay the 150 in cash, but they have no cash. And realistically, they can't fund it all through debt (revolver + TL), so what is the solution?

I can't help much but at least I can say the file is free of virus:

https://www.virustotal Dot com/en/file/a4825db6ab92ecafc937ce8b9c123ae6eed7bf06129306265aa7af47c13afce1/analysis/1371776363/

use the revolver... revolver was created exactly for situations like these..

For the buyer, it doesn't impact anything. Look up the formula for EV.

For the seller, they simply add cash to equity value and use a portion of the proceeds to payoff existing debt.

Please muder my logic if I'm wrong. I'm only a peon at this point in time having done some reading on this site and on M&I. I'm going to do this without looking anything up, just based off of what I remember thus far.

Enterprise Value = Debt + Equit - Cash/Cash Equivalents

From the Buyers perspective:

I'm buying this company using debt-free cash. Life is good and I don't need to worry about a thing.

or

I'm buying this company. They have a chunk of debt-free cash that I will aquire. The EV formula tells me I need to exlude cash from the total value. Free cash in my pocket? (Doesn't feel right).

From the Sellers persepective:

Hey, I also have a chunk of debt-free cash going out the door along with this company. The EV formula tells me I need to exlude cash from the total value. Free cash in their pocket? (Doesn't feel right).

or

Hey, I am selling this company that also has debt-free cash along with the deal. That's worth/should be worth something in this deal. Value it and give me my portion.

Please help.

Why wouldn't the purchase price just be a multiple of EBITDA? Is this posted in the correct forum?

I'm asking about the implied equity purchase price - not the transaction value/enterprise value/aggregate purchase price.

Section 382 limitations are based off of the fair value of equity.

It's tricky in this case since its structured as a stock acquisition but on a cash free / debt free basis (which is more akin to the the enterprise value).

Cash free / debt free transactions are mainly seen in asset purchases (vs. stock purchases).

bump

AP =/= debt

Not really sure what you're asking here.

Working capital typically just rolls over and is assumed by the purchaser but even if it isn't it's 6 of one and a half dozen of the other -- if you pay out AP, it just gets stretched back later as a source of cash.