András Lendvai is part of the Lendvai & Szörényi Law Firm based in Hungary, and is a regular contributor to publications released by IMAP MB Partners on topics around the legal challenges that parties encounter during M&A transactions.
Enterprise Value and Contractual Purchase Price – Debt Free Cash Free Valuation
The valuation of the target company is a substantial element of any given acquisition transaction. This article showcases the DFCF (debt free cash free) standard for enterprise valuation and the issues raised in the context of transaction contracts. The DFCF valuation is a calculation that ignores how the target company’s business is funded. The DFCF valuation shows the value of the company without accounting for the net cash or net debt held by the company, either on average during the year, or at closing.
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The ancient principle si vis pacem, para bellum (if you wish for peace, prepare for war) still holds true for modern-day M&A deals. During the drafting of the transaction agreement, the parties should prepare themselves for future disputes. Since arbitration can ensure that the tribunal deciding on the merits will have the special expertise required for complex disputes such as those arising out of M&A deals, it is common for parties involved in such transactions to submit their disputes to arbitration.
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