Comments (9)

May 14, 2017

I'm confused, what are you asking?

May 15, 2017

No

May 15, 2017

Net debt is only referring to the OLDCO company debt minus OLDCO company cash

May 15, 2017

Hope you're a student, else may God have mercy on your LP's.

    • 1
May 15, 2017

ha, I am an intern as my summer boss said try learning to drive on the highway and make heavy use of this site as the drivers ed manual!

May 15, 2017

Google Sources & Uses

May 15, 2017

Yes. You build pro-forma financial statements and use an adjusted present value calculation if you're using the DCF method of valuation.

May 15, 2017
wallstreetBoor:

if using $50M of equity and $100M of debt financing to purchase a private company, does that $100M of debt get included in the transaction net debt and effective valuation?

I don't understand why most people are dissing a legitimate student/intern question.

Think of it this (slightly simplified) way:

USES (i.e. what do I need to "buy"):
- The Equity that the current owner will want to be paid
- The existing net debt that the current owner is responsible for

Why would he be paid more/less because you finance the company with more/less debt?

SOURCES (i.e. how do I find the money I need to buy this company):
- The Equity that I will use (my real money)
- The debt that someone gives me to help me buy the company

This will only depend on my choice and ability to raise debt. (Of course sometimes you just roll-over existing debt, or partially re-leverage the company, but let's keep it simple for this example).

This can be achieved in many different ways depending on structure, tax requirements, legislation, etc. but a useful and immediate way for you to visualize this is to imagine that selling shareholders pay themselves a dividend equal to the increase in Net Debt (difference between what we called pre- and post- transaction) just before closing, so that the equity received by the buyer + the dividend gets them their equity value with current debt position, leaving a more indebted company to the buyers, who will be "compensated" by using less equity.

    • 1
May 17, 2017
Comment