Enterprise-to-equity bridge

The enterprise-to-equity bridge (or EV-to-equity value bridge) is the calculation that converts the enterprise value — determined by operational valuation methods (DCF, EBITDA multiples) — into the equity value (the price paid for the shares), by deducting net financial debt and adding non-operating assets. It is one of the most technically complex and commercially contested steps in any M&A transaction, where each line item must be precisely defined in the contractual documentation.

The standard bridge formula is: Equity Value = Enterprise Value − Net Financial Debt + Surplus Cash + Non-Operating Assets − Non-Operating Liabilities. Net financial debt includes: bank loans, bonds, finance lease liabilities (IFRS 16), earn-out payables, pension obligations not provisioned, and guarantee commitments — minus freely available cash. Each component is subject to detailed contractual definition in the SPA: the treatment of IFRS 16 lease liabilities, the definition of "freely available" cash, the scope of earn-out payables, and the normative working capital level are among the most frequently disputed items.

In a locked-box mechanism, the bridge is fixed at the reference date and only value leaks are adjusted. In a completion accounts mechanism, the bridge is recalculated at the actual closing date using audited closing accounts, with a post-closing price adjustment. The choice of mechanism determines who bears the risk of working capital movements and cash generation between signing and closing — typically the seller in a locked-box and the buyer in a completion accounts structure.

At Hectelion, we structure and negotiate the enterprise-to-equity bridge in our M&A advisory and valuation mandates, ensuring all components are precisely defined and commercially protected.