Question

I have an acquisition deal to analyze and I have to determine if the price paid is the right one. Using the multiple method ev/ebitda I get a value of 600, but the target company (publicly trade) has cash for 200 and no debt. The final price paid was 560 paying 9.5 per share. Should I compare the value I determined, 600, vs 560 or should I add 200 for the cash? Which would mean use the equity value of 800 vs 560. Is the comparable towards the purchase value made with the Equity or the EV in this case? Thank you

Answer 1

You shouldnt add cash.. EV paid was 360 (560-200) ...However if through your EV/EBITDA method , you had arrived at a value of 600 , then it has been a cheap purchase