When a firm wants to make a minority investment in say a private company, do you just take %ownership of target's DCF valuation? So if A wants to make 20% minority investment in B and B is worth $X Million according to DCF model, you just do 20% of DCF?
| +81 | Who is the final boss in Houston Energy? (GS, JEFF or EVR) | 18 | 5h |
| +71 | [2026 - October] Unbiased Prestige Rankings | 43 | 44m |
| +47 | You should probably leave IB | 22 | 1h |
| +45 | Why Do We Turn Comments? | 10 | 14m |
| +44 | Lazard US Views 2026/2027 | 17 | 1h |
| +43 | McK vs A&M Offer Decision | 23 | 8h |
| +43 | Tomorrow Will Be Better | 5 | 2d |
| +39 | Moelis PCA vs Lower tier BB Coverage | 26 | 21h |
| +22 | UBS’s Investment Bank Is Building an AI Slop Factory | 3 | 11h |
| +21 | How early is to early? | 9 | 3d |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
If the company has any net debt, you deduct that amount from the DCF valuation (which is the EV assuming you're looking at Unlevered FCF), and then do 20% of the remaining equity value
Wouldn't you invest 20% based off of their balance sheet? The 20% means the amount of influence over managerial decision-making, i.e. 20% of equity. So if a company has $100 assets, $40 Liabilities, $60 Equity... you would need to buy up $12 of the equity to have a 20% investment in that company.... right?
Yes, that's right. To use your example - theoretically, the DCF gives you the value of the Assets of the company ($100) if you discount unlevered FCF (Liabilities + Equity, which is a proxy for EV in very simple terms). So you would deduct the net debt ("Liabilities" of $40), which would give you the equity value ($100 - $40 = $60, i.e. your "Equity"), and then multiply that by 20%.
Rerum illo accusantium distinctio possimus excepturi laboriosam. Quisquam rerum blanditiis dolorem enim dolore consequatur laudantium. Assumenda cumque quam sit amet eligendi sit labore. Vero delectus et quia rerum rerum quaerat.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...