ByPricing a deal is less about finding a perfect multiple and more about agreeing on language. When people say enterprise value vs equity value, they often mean different things, which is how pricing calls drift.
Keep it simple. Enterprise value prices the business. Equity value prices the shares after net debt, working capital pegs, fees, and rollover equity. With clean definitions, a short bridge, and a sanity check on how you are setting the number (comps, precedents, DCF, LBO floor, auction dynamics), the rest becomes judgment about cash flow and risk rather than debate over labels.
The value stack
- Enterprise value is the headline price for the business.
- Equity value is what sponsors fund after net debt and adjustments.
- Net debt, working capital true ups, and fees connect the two.
Key relationships:
- Enterprise Value=Equity Value+Net DebtEnterprise Value=Equity Value+Net Debt
- Equity Check=Purchase Price−New DebtEquity Check=Purchase Price−New Debt
Bridge: Price the business, then reconcile to cash at close.
Five ways deals get priced
- Trading comps for market temperature and sanity checks.
- Precedent transactions for control premia in similar cycles.
- DCF for steady cash generators.
- LBO floor where debt capacity and return targets set the ceiling you will pay.
- Auction dynamics when scarcity and sponsor fit move the final print.
Quick example
Assume 20 million EBITDA, 50 percent cash conversion, moderate cyclicality.
- Market comps at 10x EBITDA imply 200 million EV.
- You underwrite to 55 percent LTV and 2.0x MOIC in 5 years.
- If underwriting supports only 9x with your leverage and return constraints, the LBO floor is 180 million EV. The auction may clear higher, but your model should not.
What moves the multiple
- Durable growth with low volatility beats fast growth with fragility.
- Gross margin and cash conversion support deleveraging.
- Customer concentration, churn, and contract quality drive downside.
- Capital intensity and working capital drag compress multiples.
- End market cyclicality and regulation lift discount rates.
Drivers: Cash durability, reinvestment needs, and risk shape the multiple.
When each method wins
| Method | Best for | Watchouts |
| Trading comps | Market sanity checks | Cyclicals and short-term noise |
| Precedents | Control premium context | Old-cycle prints can mislead |
| DCF | Stable cash generators | Aggressive assumptions |
| LBO floor | Sponsor realism and returns | Over-optimistic leverage |
| Auction dynamics | Scarce assets and roll-ups | Winner’s curse risk |
Simple EV to equity bridge
Visual idea: Waterfall from enterprise value to equity value with net debt, working capital adjustment, fees, and rollover equity. Caption: The bridge is where deals are won or lost.
Diligence that defends price
- Quality of earnings and revenue recognition.
- Cohort retention and pricing power.
- Working capital seasonality and cash conversion.
- Maintenance capex vs growth capex split.
- Covenants and interest coverage under downside.
To Conclude…
Bring it home the same way every time. Define the terms, show the EV-to-equity bridge, align on treatment of leases, pensions, and options, then test the price with your underwriting and a simple downside.
If the bridge ties and the method matches the company’s cash profile, you can defend the print. If not, adjust before the next round. Keep the focus on cash durability, reinvestment needs, and risk. That is what moves the multiple, and it is what survives diligence.
