An offer of €20 million for a business does not necessarily mean €20 million will reach its shareholders. Understanding what the price measures, and the adjustments beneath it, makes offers easier to compare and negotiations more precise.
In this perspective
Start with the basis of the offer
Enterprise value describes the value attributed to the operating business on an agreed basis. An offer is often expressed on a cash-free, debt-free basis with a normal level of working capital delivered at completion. Those words matter: they describe the assumptions underlying the price, rather than a requirement to empty every bank account before ownership changes.
Equity value is the amount attributed to the shares after the agreed adjustments. In a completion accounts transaction, the bridge commonly adds eligible cash, deducts debt and debt-like items, and adjusts for working capital relative to an agreed target. The contract determines the actual definitions, accounting policies and measurement date. This schedule should travel with the offer through negotiation and documentation.
An illustrative €20 million valuation bridge
Consider a simplified example in which the parties agree enterprise value of €20 million. All figures below are illustrative, expressed in millions of euros, and assume a completion accounts mechanism. The eligible cash balance excludes restricted cash; the debt-like items are excluded from working capital.
- Enterprise value: €20.0 million.
- Add eligible cash: €1.2 million.
- Deduct financial debt: €4.0 million.
- Deduct separately agreed debt-like items: €0.3 million.
- Add working capital above the target: €0.1 million, calculated as €2.1 million delivered less a €2.0 million target.
- Resulting equity value: €17.0 million, before any other agreed adjustments.
Count the working-capital adjustment once
The €2.0 million target is already part of the commercial basis for the enterprise value. Only the €0.1 million difference enters this bridge. Adding the full €2.1 million delivered would count the normal operating funding a second time. A shortfall against the target would instead reduce equity value under this example's agreed mechanism.
The same discipline applies to individual balances. A customer deposit, unpaid bonus or overdue supplier amount cannot be deducted as debt-like and also reduce working capital through the same liability. Build one classification schedule that allocates each relevant account consistently. Where a balance is split, document the rationale and amounts.
Look carefully at cash and debt definitions
Cash may be restricted, trapped in an entity or required for an agreed operating purpose. Borrowings may carry accrued interest or repayment costs. Shareholder loans, lease liabilities, pension obligations and other balances require specific treatment; their inclusion is negotiated and depends on the valuation basis and transaction structure.
Consistency is especially important for leases. The treatment of lease costs in the earnings measure used to value the business should align with the treatment of lease liabilities in the bridge. Ask for the offer to show its assumptions explicitly instead of treating a multiple and a balance-sheet adjustment as independent decisions.
Translate equity value into personal proceeds
The resulting equity value is still different from cash available to an individual seller on completion. Escrow, deferred payments, earn-outs or a reinvestment may change the amount and timing received. Seller fees, shareholder-specific allocations and tax also affect net proceeds, with the appropriate specialists assessing the actual position.
Request a worked bridge early, using a recent balance sheet, and update it as terms develop. For a locked-box proposal, examine the reference accounts, permitted leakage and any agreed value accrual instead of importing completion accounts adjustments automatically. Comparing offers on a common bridge reveals whether a higher headline price represents a better economic outcome.
