hi guys. doing an LBO right now and trying to understand some things. in my example, it seems as though equity purchase price = EV. what about debt, cash? are there some basic mechanics / concepts I'm not understanding here?
thank you very much
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Enterprise Value = Equity + Net Debt
Net Debt = Total Debt - Excessive Cash (any cash over required amount to operate the business)
The purchase price is always EV unless there isnt any debt or cash on the balance sheet, in that case it would EV = Equity Value.
As an example, if you are buying a business with 1M EBITDA that has 3M debt and 1M excessive cash on the balance sheet for 10X, the following would be true:
EV = 1M x 10 = 10M
Equity Value = 10M - 3M Debt + 1M Cash = 8M
Thanks! But if most deals are done on a cash free and debt free basis, then usually purchase value of equity will = EV, right?
Cash free and debt free basis means you are netting the debt and cash out. If you werent doing that u would assume the debt and the cash and equity value would be EV
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