TREATMENT OF ABL LINE IN TRANSACTION AS NWC?

We're working on a transaction where the business has a large ABL facility, using the AR as collateral.

My view is, all businesses are cash-free and debt-free enterprise valuations.

For simplicity purposes, I'll use round numbers. We have placed an enterprise valuation of $100 on the business. The Line of Credit is currently drawn to $70. There are a few other pieces of long term debt on the business totaling $10.

We view the equity value in the business to be $20. The banker pushed back and has said they view the line of credit to be part of the net working capital in the business and thus should not be included in the calculation of equity value, making it $90.

This is the second time I've heard this concept argued by a banker, but I've never heard of anyone who's actually bought this.

Any insights out there?



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