Compare two M&A bids
Advise Alder Metering, a fictional seller. Both bids cover the whole company. Use USD millions unless shown.
Alder has $15m in normalized EBITDA. At 9× EBITDA, operations are worth $135m. Subtract $35m debt and add $10m excess cash to get $110m for equity holders, or $11 per diluted share.
If a sale fails, assume the weaker outlook leaves $80m in equity value. Ignore taxes, fees and payment timing.
| Term | Bid A | Bid B |
|---|---|---|
| Cash at close | $108m | $90m |
| Buyer shares | None | 2m |
| Buyer share price | — | $10 |
| Earnout if milestone is met | None | $12m |
| Chance of earnout given close | — | 50% |
| Assumed chance of closing | 95% | 75% |
How to calculate expected equity value
Multiply the buyer share count by its current price. Add cash and the expected earnout. The earnout pays only if the deal closes and the agreed milestone is met. Multiply its cap by the chance of meeting that milestone given close.
Multiply expected proceeds given close by the closing probability. Add the fallback equity value multiplied by the probability the deal fails.