Why do I have to pay for Cash needed for operations in an LBO
Why do I have to pay for Cash needed for operations in an LBO. I have seen it appear in sources, but shouldn't that be included in the equity value I pay for? Should it ever appear in uses?
If the cash is NOT used in operations, but remains on the balance sheet of target, you pay for it. Indeed increases equity value. If it IS used in operations (cash register of a supermarket for example), you should treat it as working capital (and take the average of a certain period to see if there is a deficit/surplus at transaction date).
In the case that there is a deficit or surplus, what happens?
Let's say equity value is $100, gross debt is $100 and we have $50 in cash, $10 in required cash. In my uses do I have $100+$100-$50+$10?
Is the equity value already reflecting the cash position?
Please make sure to make the distinction between the liquidity to do business (for which you have a RCF with the bank as long as it is 0 at least once a year) and actual physical cash in the business (or on blocked accounts etc).
Sorry for the simple ask but how would each of these affect sources and uses?
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