hard · Private Equity
When building an Enterprise Value (EV) bridge, why is an 'investment in associates' (equity-method investment) typically subtracted from Enterprise Value to arrive at Equity Value?
- Minority shareholders hold a claim on the associate's value that offsets and reduces its contribution to the bridge.
- Associates represent a debt-like liability on the balance sheet that must be settled promptly upon any change of control.
- The associate's own cash balance is already fully captured within the acquirer's consolidated net debt calculation.
- The value of the associate is included in the market value of equity but its earnings are not in the consolidated EBITDA.
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