EV bridge question
I have a doubt regarding exercises on TEV/EqV bridge that I was asked in an interview:
Why do Equity Value on the bridge stays the same when I overpay for the Shareholder's Equity of the target? While it decreases (making more sense to me, as you account for a 'distruction' of value) when you overpay for the Enterprise Value of the target?
See the below examples?
- Let’s say the company raises $200 million in Debt to acquire another company for a
purchase price of $200 million. The other company’s Common Shareholders’ Equity is $100 million.
Breaking Into WallStreet questions say that you EV increases by 200, because Goodwill and other intangibles are both core business assets, therefore reflected in TEV.
- But let's say a company pays $200 million in debt to acquire another company's TEV= $100 million.
In this case EV pro forma would be the sum of the two enterprise values. Hence:
TEV: + 100; Net debt: + 200; EqV reflects overpaying by decreasing:-100.
Can't get my head around the reason of this one, I understand it is for the fact that TEV of the target includes non-core assets whereas EqV does not, but any clarification would be great.
Cheers,
Et corporis excepturi ut. Molestiae expedita debitis vero nesciunt et quod hic.
Cum inventore modi et nisi aut et. Reprehenderit sunt doloremque ex omnis et. Cupiditate error nostrum ut nesciunt laboriosam dolorum voluptatem. Ab ducimus voluptatibus eum dolorem officia et enim. Et quam et itaque odit ipsam optio. Explicabo vitae velit ut quis eligendi ab.
Dolorem commodi esse recusandae doloremque architecto. Molestiae odit quis dolore numquam impedit blanditiis. Aut sit qui eos adipisci voluptatem. Eligendi eligendi quasi suscipit sint ducimus sed. Eos et maiores repellendus et sit. Illum odio et atque voluptas non. Occaecati rerum tenetur ut incidunt enim nisi.
Officiis omnis consequatur illo autem reiciendis aliquid. Voluptas adipisci saepe reiciendis. Eveniet ex id eligendi et fugit tempore possimus.
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...