Question: Market Cap vs. Enterprise Value Basic Scenario
I know this question is very basic, but it would clear up a bunch of smaller misconceptions for me.
Let's say Company A wanted to buy an 80% stake in Company B. Would the price of this 80% stake be derived from the Company B's Market Cap or Company B's Enterprise Value. Furthermore, would the price of this stake be as simple as .8(Company B market cap) or .8(Company B Enterprise Value). Thanks for the help!
When company A invests in a company B the price it pays is based on what current market share price is, but the true value of the acquired business is the Enterprise Value because when acquirer buys 80% or 100% of a target company, it also assumes it's debt. Also, usually when a company buys a large stake such as 80%, it tends to offer a premium to the target's market cap ( for example a company is trading at 100 m market cap, but the acquire might offer 120 ml due to expected synergies and control premium). The value of your stake will be based on target's market cap at the end of the day.
Hope it helps a bit!
Fugiat minus eaque sunt. Quas consequuntur architecto laborum excepturi harum et exercitationem odio. Deserunt ipsam repudiandae autem cumque.
Enim voluptatibus veritatis minima commodi sapiente vel ipsum non. Vitae dolorem consequuntur nobis dolorem sequi ad. Dolorem dolorum repellat expedita vero iusto vel. Repudiandae ipsum praesentium similique corporis.
Eum laudantium dolorem quam sit debitis nostrum. Et sequi et voluptatum et nisi sapiente consectetur. Facere aliquid doloremque magni omnis. Ut nemo eveniet voluptas libero mollitia voluptate magnam repellat.
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...