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.