Need some quick help on a valuation. I am working with a company where the CEO owns 60%, this guy owns 40%. The valuation of the business is 2mil, so he needs 1.2mil for the equity portion he also wants to buy the real estate, they currently have 100k in equity on a 300k mortgage, however the new appraised value of the the real estate is 475k. so how much does he pay for the real estate? 60k for the current equity then (475-300) * 60%?
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no if he's taking all of it then you have to diminish his 1.2mil by 475K ex. the 300k loan so 175k. of course he inherits the loan too thus acquiring this piece of 475K RE would enlarge his balance sheet by exactly 475k in assets and (175|300 in Equity|Debt)
I'm assuming the real estate is an asset separate from the business.
Functionally you would probably have to do a re-fi of the mortgage (I'm not a mortgage expert, but with corporate debt there are change of control provisions. If this guy is buying out the majority owner then the bank will probably have to re-underwrite the deal given his credit profile rather than the credit profile of the CEO).
In that case how much cash you actually need depends on what you kind of mortgage you can get, less the $70 (40% of $175 equity value) in equity he already has, and thus doesn't need to buy out.
For example, if he can get a $350 mortgage, he would need an additional $55 in cash to own the real estate outright.
Sources: -$350 mortgage -$55 cash Total: $405
Uses: -$300k debt refi -$105 buyout of CEO equity ( = 60%*$175) Total: $405
Isnt the equity value 100K, not 175K? Why did you use 175k?
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