Do transaction fees increase EV?
Current cap structure:
Debt - $550
Cash - $50
Equity - $500
EV = $1,000
I acquire the company, incur $50 of trx fees and need to keep BS financed with the existing $50. So:
Uses:
Debt/Equity - $1,050
Trx fees - $50
TOTAL USES = $1,100
Sources:
Debt - $700
Equity - $400
TOTAL SOURCES = $1,100
PF Cap Structure:
Debt - $700
Equity - $400
Cash - $50
PF EV = $1,050
It appears EV has gone up by the transaction fees?
The decrease in cash also decreases overall equity value by the same amount. As a result, transaction fees do not affect EV.
Thanks for the comment.
So PF cap structure would be: Debt - $700 Equity - $350 Cash - $50
?
No. Your calc of EV should be independent of sources and uses.
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