Key Insight
Enterprise value is what the business is worth. Equity value is what the seller gets. In SMB deals, they're usually the same — but knowing the difference prevents confusion at closing.
Equity Value in Practice
For most SMB asset sales:
- Business is delivered debt-free
- Working capital is normalized to an agreed target
- Enterprise value = equity value = what the seller receives
The distinction becomes material in stock sales or when the business carries debt that transfers with the entity. In those cases: equity value = enterprise value − net debt.
Purchase Price Adjustments
The equity value actually paid at closing frequently differs from the headline number in the LOI due to working capital adjustments, pre-closing distributions, debt payoffs, and closing costs. A $1.4M LOI can result in a $1.27M payment at closing after adjustments. Understanding the mechanics of these adjustments — and getting them into the LOI — is essential.
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