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Debt financing là gì


In this ongoing series, a number of different M&A experts from the global offices of Rödl & Partner each present an important term from the English speciadanh mục language of the mergers và acquisitions world, combined with some comments on how it is used. We are not attempting lớn provide expert legal precision, Đánh Giá linguistic nuances or present an exhaustive sầu definition, but rather to lớn give sầu a basic understanding or refresher of a term and some useful tips from our consultancy practice.

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The concept of Cash Free và Debt Free (or CFDF) is simple to lớn define và easy to apply, making it a purchase price mechanism that is used worldwide in the negotiation of company transactions. But, what exactly does it mean lớn use the CFDF mechanism as part of a transaction?

Basically, it means that until the closing date (i.e. the last date on which the target company is still owned by the vendor) the vendor is theoretically entitled lớn retain all cash and to pay off all debts. This is not usually done in practice (at least not for a share deal), instead all the cash and debt remaining on the Balance Sheet at the closing date is added/deducted as appropriate from the Enterprise Value (i.e. the total value of the company, being the market value of the equity plus the value of debt capital) in order lớn determine the final Purchase Price.

In practice the Purchase Price is normally composed of: (i) the Enterprise Value (EV) defined in the share purchase agreement (“SPA”) which is the result of the Company’s valuation, as well as (ii) the amount of cash và cash equivalents minus (iii) debt and debt-like items plus/minus (iv) any other purchase price adjustments agreed between the parties (e.g. differences in the màn chơi of net working capital between the average màn chơi defined in the SPA and the actual value on the balance sheet at the closing date).

We will briefly explain below items (i) to (iii) mentioned above, khổng lồ clarify the way in which the CFDF mechanism works và its importance in practice.

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Enterprise value (EV)

The Enterprise Value refers to lớn the market value of all sources of a company’s capital (i.e. the market value of debt capital, comtháng equity và preference equity, minus cash & cash equivalents). There are several techniques for determining a company’s enterprise value. In M&A practice, discounted cash flow methods and approaches using multiples are the most widely applied methodologies. In terms of multiples valuations, EBITDA- and EBIT-multiples are by far the most common multiples used.

EBITDA và EBIT are profitability indicators unaffected by the financing structure of a company. They are thus suitable for determining the Enterprise Value of a company.As part of a cốt truyện giảm giá acquisition, shares are acquired in the target company. The value of these shares is represented by the “Equity Value” (market value of the equity capital). To determine the equity value it is necessary lớn exclude the effect of net debt (i.e. (ii) cash & cash equivalents – (iii) debt & debt-like items).


Cash & cash equivalents

The financing structure will vary for each specific M&A deal và will be set up individually. The definition of cash và cash equivalents is generally the same, however. The most conservative definition would consider only cash in ngân hàng accounts (i.e. available on demand), although sometimes there are other items in the Balance Sheet that are classified as cash equivalents. As part of a due diligence, they must be analysed, quantified và adjusted if necessary. These include:


Restricted cash: Restricted cash - in contrast to unrestricted cash which is freely available for a company khổng lồ spend or invest - refers to lớn cash that is held for a specific purpose & therefore is not available khổng lồ the company for immediate or general business activities. Most of these cases relate to lớn bank deposits offered as collateral (e.g. legal deposits or guarantees for bank loans and other forms of financing). In theory, restricted cash should only be considered as a cash equivalent if there is a relative liability which is included as a debt-lượt thích nhà cửa. Nevertheless, it is crucial lớn underst& và evaluate the specific features of each individual case.Petty cash: Mainly in emerging countries, where companies’ internal controls are not always very sophisticated, this trương mục is regularly used khổng lồ register reconciliation differences. In this case, the petty cash should not be considered as a cash equivalent. Other examples: Credit thẻ receivables và payments in transit; ngân hàng reconciliations; escrow accounts; loans to lớn third parties, etc.


Debt and debt-lượt thích items

The definition of debt và debt-like items for an M&A giảm giá khuyến mãi is generally broader than just bank loans và financing. For instance, an chiến thắng can be considered as a debt or debt-like tác phẩm regardless of whether it is shown as a liability on the Company’s balance sheet. Some examples of debt và debt-lượt thích items are:


Loans và financing: The most comtháng example are loans taken out with banks or financial institutions.Long term provisions: Long-term provisions are usually discounted, and are therefore not fully reflected in the company value. So, for example, expenses for the creation of future provisions are not included in the multiplier basis used for valuation. Long-term provisions should be considered as a debt-lượt thích thành tích (e.g. for pensions, age-related part-time working, employment anniversaries, provisions for lawsuits, or environmental issues).Debt-like items: There are other examples of debt-like items that should be assessed by both parties during the deal, which can have sầu a direct impact on the purchase price (e.g. provisions for income taxes; overdue payments to suppliers; advance payments from customers, loans from third parties, capex backlog, extraordinary liabilities from capex). Materialized and non-materialized exposures: Materialized exposures (e.g. lawsuits against the company) together with imminent exposures (e.g. non-compliant procedures that could result in a materialized exposure in the future) are also treated as debt-lượt thích items. The likelihood of their occurrence and the total amount should be evaluated by legal advisers.


Please see below a presentation of a brief summary of the practical application of some of the headings presented in this article: