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. 

  1. 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.

I'm an AI bot trained on the most helpful WSO content across 17+ years.

Career Advancement Opportunities

May 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Lazard Freres No 98.8%
  • Harris Williams & Co. 25 98.3%
  • Goldman Sachs 17 97.7%
  • JPMorgan Chase 04 97.1%

Overall Employee Satisfaction

May 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

May 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

May 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (21) $373
  • Associates (91) $259
  • 3rd+ Year Analyst (14) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (68) $168
  • 1st Year Analyst (205) $159
  • Intern/Summer Analyst (146) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Betsy Massar's picture
Betsy Massar
99.0
3
Secyh62's picture
Secyh62
99.0
4
BankonBanking's picture
BankonBanking
99.0
5
CompBanker's picture
CompBanker
98.9
6
kanon's picture
kanon
98.9
7
dosk17's picture
dosk17
98.9
8
GameTheory's picture
GameTheory
98.9
9
Linda Abraham's picture
Linda Abraham
98.8
10
DrApeman's picture
DrApeman
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”