Enterprise Value vs Equity Value: What you’re really selling (or buying) 

When it comes to valuing a business, two numbers often dominate the conversation: Enterprise Value (EV) and Equity Value. They sound similar, but they represent very different things – and understanding the difference is crucial if you’re buying, selling, or advising on a deal. 

Let’s start with the basics: 

• Enterprise Value is the total value of the business. It reflects what a buyer is willing to pay for the company’s future earnings, regardless of how it’s financed. It includes debt, excludes cash, and is often calculated using a multiple of EBITDA. 

• Equity Value is what the shareholders actually receive. It’s the value of the business after adjusting for debt, cash, and working capital – essentially, what’s left once the buyer has accounted for everything they’re taking on. 

Why the difference matters 

Imagine you’re selling your business. You hear it’s worth £32 million. That’s likely the Enterprise Value – the headline figure. But once you subtract debt, add back cash, and adjust for working capital, the amount you actually receive – the Equity Value – could be very different. 

Here’s a simplified example: 

• EV: £32m (based on £4m EBITDA x 8x multiple) 
• + Cash: £1m 
• – Debt: £5m 
• + Actual Working Capital: £6m 
• – Normal Working Capital: £7m 
• = Equity Value: £27m 

That £5m difference isn’t just accounting – it’s real money. And it’s why understanding the bridge between EV and Equity Value is essential. 

The nuances that shape the final price 

This is where things get more complex—and more contentious: 

• Cash-like and debt-like items: Not all cash is created equal. Not all debt is obvious. Deferred income, invoice discounting, minority interests, and even underspent CAPEX can all affect the final calculation. 

• Working capital assumptions: Deals often assume a “normal” level of working capital. But what’s normal? That can be a negotiation in itself. 

• Completion mechanisms: Whether you use a Locked Box or Completion Accounts structure can significantly impact how these adjustments are handled – and how much certainty you have over the final price. 

What sellers often miss 

Many sellers assume the valuation they hear is what they’ll receive. But unless you’ve accounted for all the adjustments, that number could be misleading. Common pitfalls include: 

• Ignoring transaction fees and taxes 

• Misunderstanding how debt and cash are treated 

• Overlooking working capital requirements 

• Assuming EV equals take-home proceeds 

What this means for you 

At Affinia, we help clients navigate these complexities with clarity and confidence. Whether you’re preparing to sell, evaluating an offer, or advising a client, we make sure you understand: 

• What the buyer is really paying 
• What you’re actually receiving 
• How to structure the deal to protect your interests 

Because in M&A, the difference between Enterprise Value and Equity Value isn’t just technical – it’s strategic. And it can make or break the success of your transaction. 

For more information relative to your business, please contact Stuart Sheldrick for an informal chat or to arrange a free, no obligation consultation.