Trending Content - Private Equity Forum
| +45 | Consumer PE is dying/dead? | 10 | 14h |
| +44 | PE to PortCo Chief of Staff | 19 | 8h |
| +41 | Secondaries Career Outlook: Comp, Exits & Long-Term Upside? | 10 | 59m |
| +19 | Private Equity Office wear | 5 | 1h |
| +18 | Use Cases For Claude Cowork / Claude Code | 2 | 12h |
| +12 | Post-Banking Seats | 7 | 2d |
| +11 | Graduating Before Junior-Summer PE/Growth Internship — How Should I Approach the Firm? | 3 | 2d |
| +8 | How do I go from underpaid to overpaid | 2 | 4d |
| +7 | Oncycle rumors | 1 | 3h |
| +7 | JD, MBA related to PE and other Wall Street Jobs | 2 | 2d |
Career Resources
Because pre money does not include the new capital that is being raised so it is innacurate. Post money reflects the dilution from the cap raise.
How can EV change as a result of equity injection? It stays the same as determined by comps or by DCF - whatever you prefer. New injection of cash impacts net debt and therefore equity value, but EV is not changed.
Similarly, equity injection per se doesn't impact EBITDA (unless this cash is invested in EBITDA-Accretive initiatives).
So pre-money and most-money EV/EBITDA should be the same for any business.
Or am I misunderstanding the question?
So a company raises capital, a group of equity investors, who require appropriate return, have given this company capital to do what? To expressly and exclusively put it in an account and earn paltry interest?
You say the EV doesn't change and it should be determined by the comps and DCF. How would your DCF change? One example is they use the cash to pay down debt, this could lead to the company having greater cash flow available to invest and promote growth from saved interest / enable them to reduce the cost of remaining debt; or could be a rescue financing where the current price of equity is factoring in default risk, post equity injection for debt paydown that risk is no longer; or it could alter the D:E ratio with the higher costs of capital of equity leading to a higher discount rate and lower value; or it could be used for an acquisition where the return on capital is above the cost of equity; or do we not trust management and they're going to waste the money and distract themselves from more important projects......either way, to say that your EV is not affected is rooted in this formulaic mentality of EV = Equity + Net Debt where people don't realise / think about what drives equity value.
Even with your comps, you wouldn't apply the same range as before, you probably used the comp growing at 10% as you top end (may have been organic or inorganic, lets ignore that for now) as your target was growing at 2%, but with new capital....?
Thanks for the detailed reply - gave me some insiration.
You are of course correct - new equity capital helps on many fronts - reduction of debt cost, additional growth. So basically what you are saying is: if you raised new equity, you need to adjust your model, incorporate more growth, revise assumptions, which will result in higher EV. But this is correct even without any equity injection - revision of model assumptions and drivers results in different EV, no point in discussing this.
The question of the topic starter is, I feel, about pre-money / post-money calculation methodologies / theory which doesn't assume revision of the model (because it is a completely separate issue). From methodological point of view (not business point of view), EV and EV/EBITDA do not change as a result of equity injection.
Also, any foreseebaly equity contributions should be in your model to start with (just as equity distributions), so even after equity raise you don't necessarily adjust your model - only if your previous one was dated.
Fugit aut quam consequatur debitis adipisci. Corporis in voluptatem porro et perspiciatis. Nisi accusantium atque omnis voluptatem a in. Commodi expedita iure qui debitis nemo sunt unde. Nemo et voluptatem veniam debitis qui non voluptates numquam. Cum omnis ipsa enim voluptatem sunt.
Quis officiis eaque atque et iusto enim commodi. Similique non voluptatem occaecati. Iure molestias qui et.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...