EV/EBITDA -- Question

Hey guys,

If you are buying a minority stake in a company, I understand you are suppose to use the purchase price as the EV and the target's EBITDA. However, lets say you buy a 20% stake in the company, should you also multiply the target's EBITDA by 20% when calculating EV/EBITDA? Otherwise it seems like the multiple would be a bit out of proportion.

 

Hey FinFTW, I'm here because nobody responded to this thread after a few days...maybe one of these resources will help you:

  • Interview Q: P/E vs EV/EBITDA multiple, which one is usually higher and why? with the analysts who were interviewing, etc but had one question that kind of threw me off a bit. P/E ... advantages vs disadvantages but no clue on a "right answer" for which one would be highest. So ...
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Hope that helps.

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Purchase price of a minority is always equity value instead of enterprise value. Example:

Target financials

EBITDA: 100 Net debt 100

Acquiring 20% at 10x EV/EBITDA

Enterprise value: 10 x 100 = 1000 Net debt: 100 Equity value: 1000-100=900 20% of 900=180 So you have to pay 180 for 20% stake in the company. Sometimes there is some sort of discount for minority stakes because you don't get control over the company (that would be reflected in a lower multiple to start with)

 

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