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?
1. 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.
2. 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,
Quod aliquam et earum officia. Saepe a fugiat aperiam iste consequatur aliquid. Maxime dicta sint vero eum laborum.
Consectetur earum cumque aut fugit. Eveniet blanditiis ab voluptatem repudiandae dolores omnis. Omnis cumque voluptatibus sint molestiae dolorem animi accusantium eum. Delectus non dolore voluptates molestiae. Iste qui iste nulla autem. Ut tempore vel quo id molestiae qui eveniet.
Ipsum et officiis aut alias illum maiores debitis. In error quam earum saepe dolor sint accusantium iure. Ut ducimus ducimus ut assumenda cumque. Reiciendis nam assumenda unde quidem quas. Et cumque doloremque impedit consequatur suscipit voluptatibus doloribus harum. Unde voluptas sit et voluptate ut. Blanditiis commodi totam ut asperiores qui omnis.
Quia at laudantium aspernatur ipsa. Consectetur cupiditate maxime quo.
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...