valuation
Equity value is the worth of ordinary shareholders' residual claim after debt-like obligations and other senior capital. In a listing it is (fully diluted) market capitalisation; in a private deal it is the proceeds the sellers of shares actually receive.
Equity value is what is left for ordinary shareholders after every more senior claim has been honoured in the valuation identity. It is not book equity from the balance sheet, and it is not enterprise value. Confusing those three figures is how a founder hears "€50 million business" and expects €50 million in the completion statement.
For a listed company, observed equity value is:
Equity value = diluted shares outstanding × share price
Dilution includes in-the-money options, convertibles (treasury or if-converted method, applied consistently) and other claims that will share in residual value. For a private company, equity value is modelled:
Equity value = EV − net debt − preferred − NCI + non-operating surplus assets
Accounting equity is a residual of historical cost, retained earnings and accounting policies. Market value of equity can sit far above or below book. Fair value of an equity instrument under IFRS 13 is an exit-price notion for reporting; a negotiated purchase price for 100% of shares is a deal outcome. Use the word that matches the assignment.
Two buyers can agree EV and still disagree proceeds if they classify shareholder loans, leases, corporation-tax liabilities, or trapped cash differently. The equity bridge is the price in a share deal.
Helion Software is invented, illustration only.
| Bridge item | €m |
|---|---|
| Agreed enterprise value | 64.0 |
| Bank debt | (11.5) |
| IFRS 16 leases | (2.0) |
| Cash (surplus) | 3.4 |
| Preferred shares | (5.0) |
| Option pool (treasury method, deal-specific) | (1.2) |
| Equity value to ordinary sellers | 47.7 |
A DCF of FCFF produces EV; a DCF of FCFE (or an equity residual-income model) produces equity value directly. Both should reconcile after the same net-debt definitions.
Sellers care about equity value: it is the cheque, subject to escrow, leakage and leakage from locked-box. Buyers care about EV for returns on total capital, then about equity value for MOIC and ownership percentages. Invest Europe-style PE reporting tracks remaining fair value of equity investments, which is an equity-value concept, not EV.
Equity value is highly sensitive to the net-debt definition and to option/preference waterfalls. In distressed situations equity can be option-like (near zero with a long tail). In high-cash compounders, equity value can exceed EV; that is arithmetic, not a glitch, if cash is truly surplus.
Dazur shows owners both numbers on one page: operating EV and equity proceeds after a defined bridge. The conversation then shifts from "my company is worth 10 times" to "here is the residual for shares, and here is what would change it in diligence"—which is the only conversation that survives a first-round process letter.