Private Company Valuation Question
When valuing a private company, once you arrive at your Enterprise Value are you supposed to subtract the debt and add the cash to arrive at Equity Value? If you're buying the entire company would you pay the Enterprise Value and ignore the Equity Value?
bump please need some help with this
Enterprise Value = Equity Value + Debt - Cash
Equity Value = Enterprise Value - Debt + Cash
Yes. The purchase price is the Enterprise Value. The seller has to pay off their debt and receives their cash on top of the Equity Value.
how so? isn’t a company just supposed to pay for equity if they want 100%control.
I thought the buyer acquires all of the debt and the cash from the target on the balance sheet. The seller is supposed to pay off all the debt?
Private company deals are almost always debt-free, cash-free. The seller is responsible for paying of their debt and gets to keep the cash (most industries, there could be nuances as mentioned previously).
The buyer comes in with an entirely new capital structure.
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