Hello everyone, what are some approaches to determining how much cash can I use from the buyer company to acquire another company? Is it just cash on balance sheet subtracting out an estimate net working capital?
For sources would I add both the target and buyers cash on hand? It seems odd you can use targets cash to acquire them?
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Hey Associate 2 in IB - Gen, the following topics might be helpful:
More suggestions...
Fingers crossed that one of those helps you.
Are you sure you're an associate 2 and asking if the targets cash would be used to buy the target company?
It could either be acquired on a cash free basis where the shareholders would take out their money beforehand or it would just be acquisition price plus cash on hand at the target
You're wrong, intern. Can you use the targets cash? Yes you purchased it, however, hard to get that across the finish line because why would shareholders or the board let that fly. Seen some target cash for Tx related fees. Regardless, if you purchase a Co for 1bn and has 200mm in cash think from an ev perspective it's kinda of, emphasis on kind of, like 800mm. Op- also factor in borrowing capacity. look at comps leverage ratios and slap that on what you’re working with.
You really just repeated what I said like you said something.
For theoretical modeling purposes or in reality? To determine the max amount of cash a buyer can use, you just assume a min cash amount (typically based on normalized monthly expenses for a certain time period). So cash - min operating cash. In reality, every company has a "min cash" that usually far exceeds just what they need to maintain company operations. With regards to your second question, target cash would not be a source. If you are acquiring a company with cash balances that are part of the transaction, then you would have to pay for that cash, so the buyer's source of cash would be higher, offset by the purchase of the target cash in the uses.
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