Equity Value

Definition

Where enterprise value (EV) values the operation, equity value is what the shareholder actually takes home. The bridge between the two — the "equity bridge" — subtracts net debt from EV and adjusts the price for the gap between working capital at closing and an agreed normal level (the peg).

For the seller this is the only figure that matters. Two businesses with identical EBITDA and the same multiple can yield very different equity values: a debt-free business sitting on surplus cash nets more than a heavily-financed one.

Worked example

EV = €3.0m. Net debt at closing = €400k. Working capital is €60k below the agreed peg. Equity value = 3.0 − 0.4 − 0.06 = €2.54m — the amount the selling shareholder receives before taxes and fees.

When it matters

Sellers who look only at the multiple or the EV overestimate their proceeds. Always carry the maths through to equity value: debt, surplus cash, and the working-capital peg often shift the final figure by tens to hundreds of thousands of euros.

Frequently asked

Is equity value the same as the sale price?

Almost — equity value is the price for 100% of the shares on a cash-free/debt-free basis, after the working-capital adjustment. Transaction fees and taxes are then deducted to get the seller's net proceeds.

Why can equity value be lower than enterprise value?

Because net financial debt is subtracted from EV. A business with €1m debt and a €3m EV has an equity value of roughly €2m, before working-capital adjustments.

What does the working-capital peg do to equity value?

If working capital at closing is below the agreed peg, the price falls by the shortfall; above it, the price rises. This prevents the seller from stripping the business of cash before closing.