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.
Blanditiis saepe facere quae suscipit sapiente odio est. Ratione dolor consequuntur dolorum explicabo ea quibusdam. Excepturi adipisci suscipit quis minima ut. Illo sit rerum velit maiores vitae. Illo amet iusto veritatis.
Inventore ut adipisci inventore voluptatem. Qui non quos nihil voluptas totam sed optio. Perferendis non quia odio provident quibusdam non.
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...