EV/EBITDA -- Question
Hey guys,
If you are buying a minority stake in a company, I understand you are suppose to use the purchase price as the EV and the target's EBITDA. However, lets say you buy a 20% stake in the company, should you also multiply the target's EBITDA by 20% when calculating EV/EBITDA? Otherwise it seems like the multiple would be a bit out of proportion.
Hey FinFTW, I'm here because nobody responded to this thread after a few days...maybe one of these resources will help you:
Hope that helps.
Purchase price of a minority is always equity value instead of enterprise value. Example:
Target financials
EBITDA: 100 Net debt 100
Acquiring 20% at 10x EV/EBITDA
Enterprise value: 10 x 100 = 1000 Net debt: 100 Equity value: 1000-100=900 20% of 900=180 So you have to pay 180 for 20% stake in the company. Sometimes there is some sort of discount for minority stakes because you don't get control over the company (that would be reflected in a lower multiple to start with)
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