So I learned today that NCI is added in the calculation of Enterprise Value (EV) for comparability measures. Because if you own over 50% of a company, you have to consolidate the financials with your existing company. If you didn't add NCI to EV then the EV/REV multiple would be messed up (REV would account for 100% of other company while EV would only include 70% stake).
This made me realize for the first time (maybe I'm just dumb for not realizing this earlier) that when calculating the EV for a potential target, you only include the % of the equity value that you plan to take on in the calculation of equity value. Like if you only wanted to purchase 51% of a target, your equity value calculation would only be the # of shares of the target equal to 51%. Is this right or am I still completely lost?
Any help appreciated, thanks.
I didn't get the question. When you acquire a company, you pay the shares that you acquire. Simple as that. Then we talk about EV to have an idea of the size of the business and scale it back to total equity (by taking back debt, NCI, pensions,...). You then only pay for the proportion of the equity you're acquiring. Was that what you were asking?
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