Weighted average cost of capital blends the return a company’s capital providers require — its cost of equity and its after-tax cost of debt — weighted by how much of each sits in the capital structure, into the single discount rate a DCF uses to bring future cash flows back to today’s dollars.
WACC blends what a company’s capital providers require — its cost of equity and its after-tax cost of debt — weighted by how much of each sits in the capital structure, into the single discount rate a DCF uses to bring future cash flows back to today’s dollars. There is no Canadian source that publishes a market cost of equity or a standard private-equity hurdle rate to plug in — that figure is the fund’s own return target and is deal- and investor-specific. The cost-of-debt half, by contrast, is genuinely quotable in Canada: deavo’s financing data puts main-street senior debt at “~8.5%, 10-yr amortization” when CSBFP-backed, small-deal bank or BDC term debt at “~8%, 7–10 yr”, and mid-market senior debt at “~3.0× EBITDA senior at ~10%, plus ~1.0× mezzanine at 8–12% (+PIK)” (source).
That means a WACC calculation cannot be looked up in Canada the way the debt-cost inputs to it can. A higher WACC compounds down to a lower present value for the same forecast cash flows, which is why a fund competing against a strategic acquirer with cheaper, lower-risk capital — or a lower required equity return — will often be structurally outbid on price for the same target, independent of how good either side’s operating plan is.
For a mid-market deal, a sponsor sets its own capital stack at 40% equity with a fund-set required return of 22% (an internal assumption for this deal, not a market figure), 45% senior debt at deavo’s sourced mid-market rate of ~10%, and 15% mezzanine debt at 10% (the midpoint of deavo’s sourced 8–12% band), with a 26% assumed corporate tax rate shielding the debt tranches. WACC = (0.40 × 22%) + (0.45 × 10% × 0.74) + (0.15 × 10% × 0.74) = 8.8% + 3.33% + 1.11% = 13.24% — the discount rate that DCF then uses, built from one sourced market input and two of the fund’s own deal-specific assumptions, not looked up as a single published number.
See also: Terminal value · Leverage multiple · Enterprise value.
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