Sale and purchase agreements

Debt free cash free is really just a valuation convention. Wherever you start, left or right, 100 million or 70 million, DFCF and equity valuation reconcile. There might be some people around the table who would rather talk about a big deal. Perhaps the adviser whose fee is a percentage of the deal size would rather talk about a 100 million valuation. Perhaps the business owner would rather say they have just sold the business at a 100 million valuation.

What about the legal sale and purchase agreement though?

A lower number (the 70 million valuation) might be useful when it comes to calculating transaction and capital gains taxes though. Although the early stages and documents of the sale process might have focussed on the higher DFCF valuation, perhaps we have an explanation as to why the legal agreement often contains the lower 70 million valuation.

Continue with the valuation course

Next the valuation course extract provides an overview of one of the main valuation methods: relative/ comparable company valuation.