Let's say that you acquire 80% of a company for $80 million, does the $100 million represent the equity value or enterprise value?
There were two questions that I was looking at and I'm not sure if one is wrong.
Q: A buyer acquires 75% of a company for $1.5bn. The revenue for the seller was $400m and EBITDA was $125m. It had $125m in cash and $75mm in debt. What were the multiples for the deal?
A: The total enterprise value is $2bn. Hence, 5x revenue and 16x EBITDA. The cash and debt don’t matter, it’s about TEV.
Q: You’re analyzing a transaction where the buyer acquired 80% of the seller for $500 million. The seller’s revenue was $300 million and its EBITDA was $100 million. It also had $50 million in cash and $100 million in debt. What were the revenue and EBITDA multiples for this deal?
A: First, calculate the Equity Value: $500 million / 80% = $625 million. That represents the value of 100% of the seller. Then, calculate Enterprise Value: $625 million – $50 million + $100 million = $675 million. The revenue multiple is $675 million / $300 million, or 2.3x, and the EBITDA multiple is $675 million / $100 million, or 6.8x.
They both seem to be asking relatively the same question, but one ignores debt and cash while the other doesn't.
I'm currently studying for technicals as well and I would assume that the first question is not necessarily phrased correctly. From the questions I've seen, when you're just talking about acquiring a % of a company, typically you would just assume that its a % of equity rather than its enterprise value. Conversely, if a question specifies that you are purchasing a company at a certain EV/EBIDTA multiple then in that case you would assume that that number is its enterprise value, rather than its equity value.
#2 is the right way to think about it. #1 is wrong or the question did not adequately clarifying that the $1.5bn includes net debt
you don't own a % of enterprise value, you own a % of equity value. Owning a % of enterprise value implies proportional ownership of the debt and equity capital. owning 100% of a company refers to equity ownership.
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