So far I assumed the equity value to be the part of a companies value that refers to equity investors. Or put differently - what would it cost me to buy out the equity investors. Now what confuses me is that equity value is synonymously used with equity value. But when I "buy" the market cap, doesn't that mean that I "own" the debt as well?
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Your first sentence is correct.
Not sure if there is a typo in the second sentence, but either way in your case, no when you are buying the market cap, you are buying out the equity and NOT necessarily the debt. Market cap comprises only the equity (lowest portion) of the cap structure, whereas debt is a wholly different part of the cap structure which must be refinanced, or paid off, given a full acquisition of a company. Usually it is required given an acquisition that the acquirer takes care of the target's debt in addition to buying the equity. Remember, you pay for EntValue... which is EntValue = EqValue + Debt - Cash.
Want to follow up from this.... I always understood equity value as: diluted shares times share price..... Market Cap/ Market value of equity to be basic/common shares times share price.. Could you clarify?
No
Equity value is the value you are paying for to acquire the equity or the company right... so if you have a traded company their equity value will be based on fully diluted NOSH indeed given at change of control the options get exercised. Market cap should also be based on diluted NOSH if you want to be accurate. So market cap = equity value if you are not speaking about an acquisition
If you buy a company then this is another story, say you buy the company for X% premium over share price then obviously your equity value will factor in this premium and will be diluted NOSH*offer price
If you are speaking about a private company it is a bit more simple, you buy it for X EV and the EqV will just be EV - net debt - other adjustments (pensions minorities associates etc)
Let me know if unclear
That's what I thought... I am an incoming IBD SA.. I would assume that for all modeling practice I do, I should define equity value in terms of diluted shares, since that's what I'll be doing on deals???
I thought that by buying the equity/market cap, I obtain the control of the company (which might actually be correct). And so I assumed that having control at the same time makes me liable, i.e. I'm also the one who has to pay the debt-holders.
Difficult to understand exactly what you're asking with the typo in your question - "what confuses me is that equity value is synonymously used with equity value"
In theory, yes, if you buy out all of the common equity, you own/control the business, which is liable for any debt. Note that this is not the same as you "owning" the debt. The lenders "own" the debt (meaning they purchased the company's debt and are due the corresponding interest/principal.
In practice, debt typically has change of control provisions which require its refinancing if control of the equity changes hands.
glad it's not just me. thought i was having an aneurism for a moment there.
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