Cash-free debt-free: reconcile enterprise value to equity value

Enterprise value and security prices are not interchangeable. A bridge translates enterprise value into equity value according to the agreed mechanism, dealing with cash, debt and other adjustments. I would start with the contractual agreements: cash-free debt-free does not alone describe all positions, dates and procedures. Cash flow restrictions, costs and NWC definitions may change the calculation.

We must avoid a presentation where the bridge seems to follow automatically from a generic formula. The parties may agree on different mechanisms, in particular closing accounts or locked-box. The financial team prepares the amounts and tests the definitions; counsel and parties establish terms. A formula does not replace this reading.

I would look at the availability, scope and restrictions of the sales. Recognized cash may be blocked, allocated or located in an excluded entity. Bank accounts must be reconciled, with items in transit and closing dates. The agreement should specify what is included and how to deal with currency differences.

The movement of cash must be consistent with the other lines. Debt repaid before closing reduces debt and cash flow; a settled transaction cost may no longer remain in liabilities. I wouldn't compare recent cash to old debt. The bridge must represent the same date or explain the transitions.

In a closing accounts mechanism, adjustments can be calculated on closing balances according to agreed definitions. A locked-box generally starts from a historical reference and deals with other protections or adjustments depending on the contract. It is not necessary to mechanically apply an NWC closing adjustment to all locked-boxes. The reference date and the leakage rules must be reviewed with the councils.

I would ask for a numerical example of each material provision. Testing the formula on available accounts may reveal classification ambiguity before signing. Overlapping items between cash, debt-like and NWC must be resolved in the calculation presentation. An agreement that is impossible to clearly apply creates a risk of litigation.

Let's take an EV of 30 M€, an included cash of 2 M€, a debt and debt-like of 7,5 M€ and an NWC deficit of 0,3 M€. In the mechanism shown, the bridge gives 30 plus 2 minus 7,5 minus 0,3, or 24,2 M€. The NWC deficit is a deduction depending on the chosen convention. All posts must use the same date and definitions.

This calculation is not automatically the price paid in a locked-box, nor the net proceeds received by each shareholder. Fees, dividends, instruments and other provisions may require separate calculations. The example explains a bridge, without claiming to cover all the modalities of an acquisition.

I would redo the calculation from the sources and check for duplicates. If a bond is included in 7,5 M€ and in the NWC deficit, the convention must be understood and the presentation corrected if necessary. An arithmetically exact bridge can remain economically false when a line is poorly defined.

I would keep a detail of the lines, sources and conventions, with a correspondence table to the accounts. The estimated and disputed amounts must be identified. A sensitivity can show the effect of an alternative treatment without presenting it as retained. Variations between versions should explain payments, new information and decisions.

The final professional examination must relate the bridge to the SPA and other financial analyses. A QoE reserve does not necessarily have an automatic price adjustment; a risk may be addressed elsewhere in the contract. The restitution must separate financial facts, assumptions and contractual consequences.

AI can help extract definitions, find liabilities and flag different dates. The calculations must remain deterministic and revisable. I would test amounts with reversed signs, paid liabilities and an ambiguous definition. The tool should signal uncertainty instead of silently choosing.

For a Solenor workflow, I would look for continuity between proof, convention and bridge. Compelling copy is not price validation. The professional must be able to defend each line and explain the limits to decision-makers.