medium · Private Equity paper-lbo
When calculating the entry equity check for a 'cash-free/debt-free' transaction, how is the target's existing cash balance typically treated if it is retained by the buyer?
- It is ignored entirely, since cash balances have no bearing on the equity value calculation in an LBO.
- It is treated as a transaction expense line item within the Uses side of the funding table.
- It is added to the enterprise value, thereby increasing the equity check.
- It is subtracted from gross debt to determine net debt, thereby reducing the equity check.
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