Quick Question on a PE transaction
Hello, my first post here. I am working on a model provided by a PE Firm there they purchase majority share of a company valued at $60MM (10x multiple of EBITDA) for $55MM with $5MM rolled over by the management. However, in the Post Close PF Balance Sheet, the equity injection is only $45MM, with the remaining $15MM as it per the previous FYE. I m a little confused about them not puttin gin the entire $60MM.
I asked the PE Firm and they stated its purchase accounting. So, for modelling purposes, since the injection is $45MM, $5MM roll over from the owner, and the rest is attributed to Assets as part of purchase accounting, correct? In reality, they would have paid $55MM to the current ownership that are selling their stake hence the total Asset side = $60MM whcih is the Enterprise Value?
Does this make sense?
Thank you.
Sal
IMO the equity injection should be 55m plus 5m rolled over to total 60m. Total asset side would be 60m only if you have no debt and no other liabilities.
so the equation A=L+E ties to $60MM. on the Asset side, theres GW of $45MM, rest in PP&E and A/R, Other Assets etc. On the Liabilities side though, it seems $15MM is being rolled through with only $45MM injected as new equity (theres no other debt, minor amount of liab. Thats whats throwing me off as I would have seen $55MM..not sure how to search this on google either but I will go over some purchase accounting info online as well. Thanks for your response.
The equation does not tie to 60mm. E is 60mm and if L is 10mm then A will be 70mm
When a PE firm buys the equity, they buy the equity. It goes to 0. They are valuing that management stake at 5mm, so they are exchanging shares of ownership for new shares. You need to wipe the old equity and now equity is $60mm. Doesn't matter if it was 100mm or 2mm or (73mm) in the shareholder equity account. It is 0. The shares are what are purchased in this case for $60mm.
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