Buyer Equity (% of Price)
See for general explanation.
When user clicks , the program automatically calculates the optimal Buyer Equity. Clicking freezes existing data in the Buyer Equity cell and updates all the financials.
Note:
1. Deal Optimizer™ simultaneously calculates Buyer Equity, Purchase Price, Gap (Seller) Note and Mezzanine Equity,
2. The words Purchase Price, Enterprise Value and Business Value are used interchangeably in BVX.
Buyer equity is entered by the user while using Deal Quantifier™, or is automatically calculated by BVX while using Deal Optimizer™.
No data entry is needed in this cell to calculate BVX Best Value.
When Deal Optimizer™ is clicked BVXoverrides any existing data in the Buyer Equity cell and calculates and displays optimal buyer equity in this cell. Unless the A Button for Buyer Equity is activated to restrict buyer equity (explained below), BVX assumes that the buyer has unlimited amount of equity. Deal Optimizer™ not only maximizes the Enterprise Value (V), but it also minimizes the buyer equity (E).
Buyer equity has a default range of 1% to 100%.
Click Deal Quantifier™to freeze buyer equity value in the Buyer Equity cell. Deal Quantifier™ does not activate the valuation algorithm; however, it instantly updates all the financial schedules. For more details see .
The Buyer Equity cell is tinted green because it acts as a combination input/output cell. It is an output cell with Deal Optimizer™ and an input cell with Deal Quantifier™.
A Button for Buyer Equity: See User Manual Addendum. Click Help when the feature opens.
- The A button turns green when this feature is in use.
- This button gives the user multiple options to "restrict" buyer equity. Read Note below to understand the implications of such restrictions, and why such restriction increases the time to find an optimal solution. The options are:
1) Unrestricted Equity Range: This is the default settings.
2) Equity equal to or greater than (%): This selection allows the user to restrict buyer equity % to be at least equal to the amount entered in this cell.
3) Equity equal to (%): This selection allows the user to restrict buyer equity % to be exactly equal to the amount entered in this cell.
4) Fixed amount: This selection allows the user to restrict buyer equity to a specific amount (not %).
- Note: Often it is not possible to satisfy multiple constraints. For example, if buyer has a limited amount of equity, say 5% of the purchase price for a profitable business, the price he/she can afford to pay is going to be impacted by service the debt rather than his/her ROE (cost of capital) expectation. Therefore, in this situation BVX has to relax the ROE constraint. BVX makes this decision through multiple trials.
To find an optimal solution under buyer equity constraint, BVX relaxes constraints as needed. It may 1) relax BVX Cash Flow constraint from being "equal to zero" to "greater than zero", OR 2) relax BVX ROE constraint from "Actual ROE equal to Expected ROE" to "Actual ROE greater than or equal to Expected ROE"