Enterprise value is the price of the whole operating business — what a buyer pays for it independent of how it happens to be financed — before any adjustment for the specific cash sitting in it or the debt it owes at closing.
The gap between enterprise value and the price on a term sheet comes straight out of how the deal is structured. Treadstone Law’s comparison of an Ontario asset purchase and a share purchase is explicit about what moves and what stays behind: in a share purchase, “nothing inside the business moves” and “the corporation keeps its name, its bank account, its HST number, its contracts, its employees and every obligation it ever took on”, while in an asset purchase “the buyer takes a named list of things: equipment, inventory, goodwill, the customer list, the phone number, the domain, the lease” and the cash and most liabilities stay with the selling corporation.
That is why a share price and an enterprise value are not the same number: a share purchase price already has the target’s actual cash and debt baked in, so a buyer has to back them out to compare it with an enterprise-value quote, whereas an asset purchase is closer to enterprise value already. Deavo’s capital-stack data shows enterprise value doing real work as a pricing convention once a deal clears roughly $1M — typically “~6–8× EBITDA” in the mid-market band, against a multiple of SDE for smaller, owner-operator deals.
A sponsor’s indication of interest values a target at $22M enterprise value. At signing the target’s balance sheet carries $5M of funded debt and $3M of cash. Net debt is $5M − $3M = $2M, so the implied equity value before any working-capital true-up is $22M − $2M = $20M — the figure the sellers actually see on the closing statement, not the headline $22M the term sheet leads with.
See also: Equity value · Cash-free, debt-free basis · EBITDA.
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