Glossary · Deals

What is enterprise value?

Enterprise value is the price of a whole business: the value of its equity plus its net debt, typically. It is what a buyer pays for the company, debt included.

In practice

Enterprise value is the denominator in the multiples used to price buyouts, such as EV/EBITDA, and it is the figure that purchase prices and leverage ratios are measured against. Adjustments vary by deal: minority interests, preferred stock, leases and pension deficits are often added, and cash is netted off. It is often confused with equity value, which is the price of the shares alone.

An example

Round numbers, not a real fund

Say a company’s shares are worth $700 million and it has $300 million of net debt. Its enterprise value is $1 billion.

Why it matters

Headlines often quote it rather than the equity value, so deal sizes can differ by the amount of debt.

In the news

Related terms

EBITDAEBITDA is earnings before interest, taxes, depreciation and amortization, a measure of a company’s operating profit. Buyouts are often priced as a multiple of it.
Leveraged buyoutA leveraged buyout, or LBO, buys a company using mostly borrowed money, with the company’s own assets and cash flow backing the debt.
Take-privateA take-private is when an investor buys all of a listed company’s shares and delists it, so the company becomes privately owned.
Fair valueFair value is what an asset would fetch in an orderly sale between willing buyers and sellers on the measurement day. Accounting standards require funds to report it.
Platform companyA platform is the first company a private equity firm buys in a sector, meant to be built up, often through add-on acquisitions.

The terms, in the news each morning.

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