Equity value is what the shareholders actually receive for their shares — enterprise value minus the target’s net debt, adjusted for whatever working-capital or debt-like items the purchase agreement pegs at closing.
Equity value is the number the selling shareholders actually collect, and in a Canadian share deal it inherits everything sitting inside the corporation. As Treadstone Law puts it for an Ontario share purchase, the buyer “buys the shares of the corporation, and the corporation keeps its name, its bank account, its HST number, its contracts, its employees and every obligation it ever took on” — source. The purchase agreement’s job is to price that: enterprise value, adjusted for the target’s actual net debt and a working-capital peg, is what produces the equity cheque.
“Equity” also does double duty in a sponsor-led deal and the two uses are easy to conflate. The target’s equity value is what the sellers are paid. The sponsor’s own equity contribution is a different figure entirely — deavo’s financing data puts sponsor equity at roughly “~35–45%” of the capital stack on mid-market deals, against “~25%” on smaller, main-street transactions, with the balance funded by seller financing and debt (source).
Continuing the $22M-enterprise-value target with $5M of debt and $3M of cash: implied equity value is $22M − $5M + $3M = $20M. To fund that purchase, the sponsor structures its own capital stack at 40% equity ($8M), 15% seller vendor take-back note ($3M) and 45% senior-plus-mezzanine debt ($9M) — a completely separate equity figure from the $20M the sellers are receiving, even though both get called “equity” in the same closing binder.
See also: Enterprise value · Holding company · Share purchase agreement.
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