The value belonging exclusively to a company's shareholders, calculated by subtracting net debt from Enterprise Value. It is the amount the buyer pays the seller in a transaction.
If Enterprise Value answers “what is the entire business worth?”, Equity Value answers the question that truly matters to the seller: “how much will I receive?” It is the metric that translates a theoretical valuation into a concrete payment.
Equity Value is the value that belongs exclusively to a company’s shareholders. It is calculated by subtracting net financial debt from the Enterprise Value and adding available cash.
Equity Value = Enterprise Value - Financial debt + Cash and equivalents
Or simplified:
Equity Value = Enterprise Value - Net debt
In a company acquisition, Equity Value is the amount the buyer transfers to the seller at closing for 100% of the shares. The company’s debt is either assumed by the buyer or repaid at closing, and the cash remains within the company the buyer is acquiring.
Converting Enterprise Value to Equity Value — known as the equity bridge — is where millions are won or lost in an M&A negotiation. Each line item in the bridge is negotiable:
In M&A practice, negotiations typically unfold in two phases:
Phase 1: Agreement on Enterprise Value. The parties agree on an EBITDA multiple or a valuation range. At this stage, the seller tends to think “the company is worth X million.”
Phase 2: Calculation of Equity Value. The bridge adjustments are applied. This is where many sellers discover that “what they receive” is significantly less than “what the company is worth”, because debt reduces the price.
This is the source of most surprises and disappointments in negotiations. A well-advised seller understands the difference from day one and negotiates knowing that Equity Value — not Enterprise Value — is their real number.
An industrial services company in northern Spain is valued at an Enterprise Value of 28 million (7x EBITDA of 4M). The bridge to Equity Value:
| Item | Amount |
|---|---|
| Enterprise Value | 28.0M |
| Bank debt (3 loans) | -4.5M |
| Finance leases | -1.2M |
| Cash in accounts | +1.8M |
| Provision for employment dispute | -0.3M |
| Working capital (deficit vs. normalised) | -0.6M |
| Equity Value | 23.2M |
The seller will receive 23.2 million at closing. The 5.7 million in debt will be repaid from the transaction proceeds. The working capital adjustment of 0.6 million will be finally determined through the completion accounts mechanism within 90 days of closing.
In practice, yes. Equity Value is the amount the buyer pays the seller for 100% of the shares. It is the closing wire transfer figure, after adjustments for net debt, working capital, and debt-like items.
Equity Value = Enterprise Value - Net financial debt. Start with the Enterprise Value (agreed as an EBITDA multiple or calculated via DCF) and apply the bridge adjustments: financial debt, cash, debt-like items, and working capital.
Yes. When the company has net cash (more cash than debt), net debt is negative and Equity Value exceeds Enterprise Value. This is common in family businesses with accumulated treasury and no bank debt.
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