Equity Bridge

Definition:

The Equity Bridge is a method used to transition between a company's Enterprise Value (EV) and Equity Value. It is particularly relevant in the context of M&A transactions and business valuations.

Calculation:

The Equity Bridge is based on the following formula:

Equity Value = Enterprise Value – Net Debt ± Adjustments

Components:

• Enterprise Value (EV): The total value of a company, including all debts and liabilities.
• Net Debt: The difference between financial liabilities (e.g., bank loans) and liquid assets (e.g., cash reserves).
• Adjustments: Factors such as non-operating assets or pension obligations that influence the Equity Value.

Practical Significance:

The Equity Bridge is used in M&A deals to provide a clear understanding of how much of a company’s value actually belongs to shareholders. Both buyers and sellers use the bridge to determine a fair purchase price and align different valuation approaches.