Equity Value
The value attributable to shareholders, calculated as Enterprise Value minus net debt and debt-like items.
Full Definition
Equity Value represents the residual value of a company that belongs to its shareholders after accounting for all debt obligations. In an M&A context, this is typically what the seller will receive.
Calculation: Equity Value = Enterprise Value - Net Debt - Debt-like items + Cash-like items
Key adjustments from Enterprise Value: Deductions (debt-like items):
- Bank debt and loans
- Finance leases
- Pension deficits
- Deferred consideration payable
- Provisions and contingent liabilities
- Corporation tax payable
Additions (cash-like items):
- Cash and cash equivalents
- Deferred consideration receivable
- Excess working capital
- Tax refunds due
Important distinctions:
- Enterprise Value: What it costs to buy the whole business
- Equity Value: What the shareholders receive
- These can differ significantly in leveraged businesses
In UK practice: Offers are typically structured as:
- "Debt-free, cash-free" basis (EV concept)
- With normalised working capital
- Completion accounts or locked box mechanism to determine final equity value
Related Terms
Enterprise Value
The total value of a business including both equity and debt, representing the price to acquire the entire entity.
Net Debt
Total debt minus cash, representing the net financial obligations that reduce a company's equity value.
Working Capital
The operating liquidity of a business, typically calculated as current assets minus current liabilities.
Completion Accounts
Financial statements prepared at completion to calculate final adjustments to the purchase price.