Enterprise value and equity value
Offers are often expressed as enterprise value: the value of the business regardless of how it is financed. What shareholders actually receive, the equity value, is broadly obtained by deducting financial debt and adding available cash, according to the definitions used in the agreement. Two offers with the same headline price can therefore lead to different amounts depending on those definitions and on adjustments such as working capital.
When, and how certain
The price may be paid in several parts:
- At completion: the amount paid on the day of the sale, the most certain.
- Deferred consideration: an amount due later, whose certainty depends on the buyer's strength and the protections obtained.
- Earn-out: an amount paid only if future targets are met. Its final value is uncertain by nature and also depends on decisions taken by the new owner.
- Rollover: part of the price reinvested in the acquiring structure. This is not cash received but a new shareholding, with its own prospects and risks.
The obligations that come with the price
Warranties and indemnities, escrow, non-compete clauses, how long you stay on after the sale: these obligations matter. A higher offer may come with heavier commitments.
A simple example
Offer A has the higher headline price: €3m against €2.7m. Offer B provides the higher certain initial proceeds: €2.7m against €2m, or €0.7m more on completion day.
In cumulative nominal payments, Offer A only comes out ahead of Offer B if more than €0.7m of the earn-out is actually paid, and only at a later date. This calculation ignores the time value of money and the difference in risk: cash received earlier and with certainty has a different economic value from a future, conditional amount. The choice then depends on your confidence in the targets being met, your role during the earn-out period, how the earn-out is calculated and your need for liquidity. There is no universal answer.
Comparing one dimension at a time
Rather than a single figure, it is more useful to compare each offer on:
- the amount paid at completion;
- deferred or conditional amounts, and what they depend on;
- price definitions and adjustment mechanisms;
- the warranties and commitments requested;
- the buyer's strength and the likelihood of completion.
Tax treatment and the drafting of clauses are matters for your lawyer and accountant. This article is a general explanation: it is not tax or legal advice, nor a recommendation on any specific transaction.
To go further, read I already have a buyer: why use an M&A adviser? and our Selling your business page.