medium · Private Equity & LBOs

If a transaction is structured as 'Cash-Free/Debt-Free' with an enterprise value of $600M, and the sponsor requires $10M of minimum cash, how is the equity check affected if the target's existing $10M of balance sheet cash is permitted to be retained for this purpose?

1. The equity check increases by $10M to account for the cash asset.
2. The equity check is lower by $10M compared to if the sponsor had to fund it.
3. There is no effect because enterprise value already excludes cash.
4. The equity check increases because the sponsor is buying more assets.

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