What's the answer to this question? I got it asked in an interview.
Suppose a parent company consists of 2 subsidiaries. A is private, owned 100% by the parent with EBITDA of $100M. B is public, 80% owned by the parent with EBITDA of 200M and trades at 5x EBITDA.
The parent has 100M shares outstanding at $10 per share, $500M debt, $200M cash. Find the EV/EBITDA multiples of the parent and A.
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EBITDA of B: 200, Multiple 5; => EV = $1000
(edited from pizzabagel calculation) EV of Parent: 100*10+500-200 + 0.2*200*5 = $1500; EBITDA = 300; EV/EBITDA = 1500/300 = 5
EV of Parent = EV of A + EV of B
EV of A = 1500-1000 = $500; EV/EBITDA for A = 500/100 = 5
edit - I believe the 80% owned makes it a trick question because you might think to exclude it, but the 20% is NCI, and for EV calculation we include it because usually EBITDA will include consolidated financials and NCI is excluded when you calculate Net Income not EBITDA.
If you exclude the 20% NCI EBITDA of B then EBITDA(B) to Parent = $160; EV = 160*5=$800
EV of Parent will be $1300 not $1500 since NCI EBITDA is excluded so NCI value will be excluded. This approach gives the same EV/EBITDA for parent (1300/(160+100)) = 5x and for A (1300-800)/100 = 5x. However the EV value isnt technically the correct one. So you could answer the EV/EBITDA multiples question correctly but the EV value would be wrong
Would appreciate if someone else can confirm this as well or correct me if I'm wrong
Most looks good to me except the EV of parent calculation - wouldn't it be:
EV of Parent = $100*10 (Equity Value) + $500 (Debt) - $200 (cash) + $200 (NCI, calculated as 0.2*[5*200])?
Which would make EV/EBITDA of Parent = 1500/300 = 5x
And then EV of A = 1500 - 1000 = 500 and EV/EBITDA of A = 500/100 = 5x
I might have messed up somewhere so please correct me if I'm wrong
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