Technical Question
Thoughts on this? I said 5x, my friend said 3x.
- Let’s say you have ParentCo, with 2 subs- CoffeeCo and DonutCo. You own 100% of CoffeeCo, and it has an EBITDA of 100m. CoffeeCo is private. You own 80% of DonutCo and it has an EBITDA of 200m. It also trades at 5x EBITDA. ParentCo has a share price of $10, with 100m shares. It has 500m in debt and 200m in cash. What multiple has the market implicitly assigned to CoffeeCo
How would you work this out?
ParentCo Equity Value = $10 share price * 100m shares = $1 billion, + 500m debt - 200m cash = 1.3 billion Enterprise Value
We own 80% of DonutCo, has EBITDA Of 200m, 200m * 0.80 = 160m EBITDA, trades at 5x EBITDA, 160m * 5 = 800m Enterprise Value for us
ParentCo EV = 1.3 billion, DonutCo EV = 800m, so CoffeeCo EV = 1.3 billion - 800m = 500m
CoffeeCo has 100m EBITDA, 500m EV, so 5x multiple
I think this is the right answer but incorrect logic.EV of Parent Co= Eq Val (10100) + Net Debt (500-200) + Minority Interest (200, from the 20% of the 1B EV subsidiary which it doesn't own) = 1500 Donut EVEV = 5200 = 1000Coffee Implied EVEV = Parent EV - Donut EV = 1500 - 1000 = 500EBITDA Mult = 500/100 = 5x
Idk why my formatting went to trash lol
This is correct. The first answer does not apply consolidation accounting.
EV = 5200 = 1000Coffee
What does this mean?
5*200 = 1000
My formatting got murdered for some reason. Maybe bc I’m on mobile?
Ah, I thought the reason we added NCI to get EV was because a parent company consolidates 100% of the financials even if we own 80% of DonutCo. But by making the adjustment to EBITDA (multiplying 200m by 0.80) since we own 80%, it achieves the same apples-to-apples comparison and we don't have to add NCI later on. Shouldn't either method work and that's why we get the same answer? We are just making the adjustment at different points.
5x.
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