If you were to do a DCF analysis for a private company looking to sell (lets say for example, a restaurant), is there any way to get to equity value? Would you just calculate it up to Enterprise Value and use that as the valuation/offer price? Or would you calculate Enterprise Value then add back cash & subtract debt to get equity value and use that as your offer price
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Also, has anyone done a DCF for a private company before and can send an example model of one? Would really appreciate it
bump
bump, need some help
Have not done private valuation stuff but conceptually I think the best figure to use for Equity Value would be that resulting from its latest appraisal or latest fundraising round.
Yes, one would do DCF and arrive at EV.
To move from EV to EqV you need make necessary adjustments often referred to as a "bridge". You would consider elements such as:
Debt - these stakeholders have claim on company's assets so we need to subtract it
Cash - we add it assuming that it can be used to repay the debt. Although, in practice a company may have a cash requirements, but for your interview forget about it
Non-Controlling interest - Minority shareholders have a claim on the company, hence its EV. We need to subtract it.
Preferred shares - Same story as NCI
Debt-like items (for e.g.: provisions for legal purposes, unfunded pension deficit, guarantees etc.) - Same story as debt
Other "asset-like" items (for e.g.: Net Operating Losses that can be used to offset future taxes) - this is an asset that belongs to equity holders, hence we add it
Associates (Investments in other companies) - it is asset for equity holders that is not included in the EV, therefore we add it
As some of these are difficult to appraise or get information about, for a quick assessment of a private company you would take the EV from DCF, subtract Net debt (Debt-Cash) to arrive at EqV.
At least that is what I have done for MM sell-side pitches of a private companies (We used precedent transactions instead of DCF though). In case you get a mandate and will be going through the whole process, or it is a big company that has associates, different groups of shareholders and etc. you would go through each element of the bridge and probably spend great amount of time fighting with the other side of transaction about value of each of the items.
nice
Offers for private companies are always in terms of EV, not Equity Value. However, that EV is “debt-free / cash-free” so it is effectively an equity value. It will also sometimes lead to negotiations over what constitutes debt (and is excluded from the transaction, remaining the liability of the seller) and what is a liability of the business.
So after calculating the Enterprise Value should I subtract debt and add cash?
And once I subtract net debt, is that the offer price for the company?
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