Cash Free/Debt Free Basis
What does it mean when a target is acquired on a cash free / debt free basis? does it mean that the new owner needs to invest working capital for business operations?
Trending Content - Investment Banking Forum
Career Resources
It means that the target (seller) keeps cash on their balance sheet at close and has to repay any outstanding debt obligations.
Working capital uses a negotiated target or peg and the purchase price is adjusted dollar-for-dollar based on the overage or insufficiency of what is delivered vs. the target/peg.
Mechanically, how it works:
Enterprise Value/Purchase Price +Cash -Debt +/-Difference in Working Capital = Proceeds to Shareholders at Close
Yep, since closing / signing are at different moments in time, this difference in WC should reflect an adjustment from negotiated price x balance sheet at the time of closing.
Quis iusto sunt harum consequatur explicabo voluptates. Distinctio impedit omnis necessitatibus et et. Libero iure distinctio rerum consequatur magnam dolores ut. Error itaque neque ipsa doloribus. Aperiam id voluptatem perspiciatis et et.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...