Broker asking how I gonna fund NAV - before I see any financial information

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April 01, 2022

by a searcher from EDHEC Business School, Lille and Nice in London, UK

Hi there,

I wanted to confirm how to address deals where the seller asking price is set as $XX + NAV. I had a few very frustrating discussions with brokers asking for how I am gonna finance the transaction - and the NAV in particular - before having access to any financial information on the target.

The $XX is ok, typically a multiple of earnings. But the NAV baffles me.

Scenario: NAV is only made of inventory and receivables. This is how I would do it: 1/ Adjust NAV by removing obsolete / unwanted inventory and bad debt. 2/ Determine the normalised level of working capital. 3/ Derive the excess NAV (1 minus 2 above); this is what I would pay on top of the earnings multiple

Am I getting this right?
If I am, then how would you handle those discussions with sellers / brokers?

Thanks for your help.

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commentor profile
Reply by a searcher
in United Kingdom
Hey Thomas, this is just a (frustrating) way some brokers in the UK value the business. Typically, the $xx is about fair value, and the price you see advertised, and then they say you still need to pay for NAV on top of $xx- adding a turn or two of ebitda to the price. As for how to address it, I reply the same as I would for any business. You have my email-happy to discuss offline
commentor profile
Reply by a professional
from Marquette University in Kirkland, WA, USA
This is a tough one because the broker probably. told the seller he/she can get a certain price plus the value of the assets. It appears neither understand the price should include all those nice things that create profit like inventory, equipment, working capital, etc.
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