Estimating net debt for private companies
Hi everyone,
I am currently valuing private companies and hence have very little information. How would one go about estimating net debt of the company?
By very little information, I mean I do not have access to their financial statements. All I have is a summary of ebitda, revenue, profit after tax. But reading the overview of the company I know they are in debt as they have problems repaying creditors.
Would it be appropriate to use capital IQ's quick comp function, get the median net debt / ebitda and then apply my company's ebitda? Any other methods?
Thank you!
Are any of the tranches public? I think they have to disclose leverage in the relevant 8-k / prospectus when they are raising a public tranche.
Otherwise, I'm not sure
Hi there,
Thanks man. But it's not a US incorporated entity. Nope none of the tranches are public.
Regards.
Ok, only other way as far as I know would be if they went bankrupt and you have access to the chapter 11 filings
I generally find CapIQ quick comps to be pretty unreliable. Would probably be better to assume no debt and some min cash balance ($1 million?)
Hi NuclearPenguins,
Thanks for the input but unfortunately, I do not even have their cash balance.
Right so mark it as an assumption that you assume $1 million in cash only (or whatever $ you decide on).
Edit: Just read your bit about difficulty repaying creditors, depending on company could still assume no debt (ie believe by time of transaction will be able to pay off entirety of debt balance), but makes it a bit trickier.
Why would you need it? Just value the company. They know their debt balance so the equity value is simple addition/subtraction but the debt load ultimately has minimal impact on the company's enterprise value.
Hi there, what I am doing is valuing the company using EV / EBITDA multiple. But ultimately, I need to find the equity value that is attributable to the shareholders and hence need to subtract net debt from EV. So I believe I would need their net debt figure?
Thanks for your inputs.
If you are expected to get to an equity value or share price they need to give you the debt/cash balances. There is no point in using a made up capitalization structure and there is no "industry standard" leverage across privately held companies. Is this an actual work assignment? I just can't imagine a current or prospective client asking you to come up with this output without meaningful inputs.
You said you have profit after tax and EBITDA. If you can estimate annualized financial expenses based on these, use an estimated cost of debt based on the comps (don't forget to add some bps/p.p. depending on how risky you think this company is compared to public comparables) to backsolve for average net debt.
Sure financial expenses may include all different kinds of stuff (fines, FX flutuation, hedging costs, and so on) but given the info available, it is a rough estimate that you could use.
Hi Nutry, I am a beginner at this. Would you mind elaborating the steps on doing so? For example, how do you estimate financial expenses based on PAT and EBITDA? And what are the steps after that.
Thank you for your help.
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