Quick Q: Does "transaction value" imply equity value paid, or debt + equity?
I'm confused. If I own X company that is $5 in equity and $5 in debt, and I sell it to someone, I'm selling that person the equity (ownership) of that company for $5, right? So the transaction value should be $5?
Enterprise value, not equity value.
Think of it this way: If you own a house worth $200,000 and you have paid down $100,000 of your mortgage (i.e., have $100k equity and $100k debt in the house) would a buyer be able to purchase it for $100K? No - they need to buy the full value of the home, its 'enterprise value' of $200k.
This confused me a little bit too back in the day. To clarify, if someone says they are buying your 'Company X' for $6/share, then they are paying $6 for the equity portion PLUS the value of the rest of it (which is everything else thrown into enterprise value). So like they said above, transaction value is Enterprise Value.
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