M&A & PRIVATE CAPITAL

Key concepts for understanding enterprise value.

EBITDA, cash flow, valuation multiples, Enterprise Value, leverage and returns tell different parts of the same story.

Understanding them means looking at a business through the lens of those assessing its quality, risk, potential and capacity to create value.

Mizzau & Partners has collected the key concepts used in the dialogue between entrepreneurs, management teams, institutional investors, and advisors.

Knowing a metric is not enough.

You must understand what it reveals about the business — and what it does not.

READING ENTERPRISE VALUE

Numbers alone don't determine value. They help understand its drivers.

The same revenue growth or the same EBITDA can lead to entirely different valuations.

Quality of earnings, margins, cash generation, capital intensity, leverage, customer concentration, competitive positioning, governance, and management depth all contribute to the interpretation of value.

This is why no single metric should be analyzed in isolation.

01 — PERFORMANCE

The quality of performance precedes the multiple.

Quality of Earnings

Adjusted EBITDA

What it is

Adjusted EBITDA is a normalised measure of operating profitability, reconciled from reported EBITDA through explicitly identified adjustments. Its scope depends on the conventions used rather than a universally agreed formula.

Why it matters

It helps establish the earnings base to which a valuation multiple may be applied and distinguishes period results from representative trading performance. A transparent reconciliation makes that distinction testable.

What it misses

A cost described as exceptional is not necessarily avoidable. Projected savings, synergies and add-backs require separate assessment: documenting them does not guarantee that a buyer will accept them.

Investor Lens

The investor tests each adjustment, its recurrence over time and its cash impact. Quality of Earnings work should distinguish normalisation of the existing business from future performance that has yet to be delivered.

Related Concepts

EBITDAQuality of EarningsEV/EBITDACash Conversion

EBITDA

What it is

EBITDA is operating profit before interest, taxes, depreciation and amortisation. With the necessary qualifications, it isolates operating profitability before financing structure and non-cash charges.

Why it matters

In an M&A dialogue it provides a common starting point for reading performance and applying measures such as EV/EBITDA. It helps assess the economic scale of the operating model; it does not determine value on its own.

What it misses

EBITDA is not cash: it excludes CapEx, working capital, taxes, interest and the funding required by the business. Reported EBITDA may also differ from Adjusted EBITDA after normalisations that are more or less supportable.

Investor Lens

An investor rebuilds the sustainable base, separating organic growth, isolated events and genuinely repeatable revenue. The next questions are how much EBITDA converts to cash and whether each adjustment is evidenced, consistent and compatible with the forward plan.

Related Concepts

EBITEBITDA MarginFree Cash FlowQuality of Earnings

EBIT

What it is

EBIT is operating profit after depreciation and amortisation but before interest and taxes. It therefore includes the accounting consumption of the assets used to produce the result.

Why it matters

It makes profitability visible after the historical cost of infrastructure and intangible assets. That is useful when comparing businesses with different capital intensity or testing whether margins support the reinvestment the model requires.

What it misses

EBIT is not a cash flow: it depends on useful lives, impairment and accounting policy, and excludes working capital, actual CapEx and payment timing. A negative EBIT can also make some multiples and coverage ratios uninformative.

Investor Lens

Institutional analysis reconciles EBIT and EBITDA with the depreciation schedule, asset age and maintenance CapEx. The gap between the measures is meaningful only when connected to the real intensity and quality of reinvestment.

Related Concepts

EBITDAEBITDA MarginCapEx

EBITDA Margin

What it is

EBITDA Margin is EBITDA divided by revenue for the same period. It expresses the operating profitability, before depreciation, interest and taxes, retained from each unit of revenue.

Why it matters

It helps show pricing, mix and operating leverage as scale changes and supports cautious comparison within a sector. Its direction over time often says more than a single reported level.

What it misses

A high margin does not imply equivalent Free Cash Flow: working capital, CapEx and taxes may absorb the difference. Non-recurring revenue, different mix or inconsistent cost classification can make two margins appear more comparable than they are.

Investor Lens

An investor analyses margin by product, customer and cohort, separating price, productivity and mix effects. The aim is a defensible margin, not one maintained by under-investing in people, technology or sales and pushing the cost into the future.

Related Concepts

EBITDAGross MarginRevenue Growth

Revenue Growth

What it is

Revenue Growth measures the change in revenue over a period, separating organic growth, acquisitions, currency and perimeter changes where possible. It may be expressed year over year or as a CAGR.

Why it matters

It reveals the demand being served, commercial execution and expansion of the addressable market. In valuation it matters because it supports future scale, but only when growth retains economic quality and capital discipline.

What it misses

More revenue does not automatically create more value: price, mix, margin and working-capital needs can deteriorate. Acquired growth or growth concentrated in a few customers may be less repeatable than the aggregate number suggests.

Investor Lens

An investor rebuilds the price-volume-mix bridge and separates organic growth from M&A. Retention, churn, backlog, concentration and contract quality are tested alongside the conversion of growth into EBITDA and cash under credible scenarios.

Related Concepts

Gross MarginRecurring RevenueCash ConversionCustomer concentration

Gross Margin

What it is

Gross Margin is the share of revenue left after costs directly attributable to goods or services sold, expressed as a percentage of revenue. The cost perimeter must be consistent across periods and peers.

Why it matters

It helps read pricing power, unit economics and exposure to inputs and suppliers before sales and corporate overhead. It is an early indicator of the capacity to fund growth and reinvestment.

What it misses

It is not overall profitability: marketing, R&D, people, overhead and CapEx remain outside it. Different allocations, product mix and the treatment of service costs can make apparently similar margins misleading.

Investor Lens

Analysis follows margin by line and customer, its resilience to inflation and discounting, and the cost of serving each unit of revenue. A stable margin is more credible when it does not rely on deferred costs or a temporarily favourable mix.

Related Concepts

EBITDA MarginRevenue GrowthRecurring Revenue

Recurring Revenue

What it is

Recurring Revenue is the portion of revenue expected to repeat through continuing contracts, subscriptions or repeat consumption. It is not automatically the same as contracted value or a guarantee of renewal.

Why it matters

It improves visibility over revenue and cash and makes a business plan easier to understand. Recurrence can reduce perceived risk and support a stronger valuation when it is profitable and defensible.

What it misses

Renewable contracts still carry churn, repricing, concentration and delivery-cost risk. Contract form and duration alone do not prove retention, pricing power, collection or the ability to preserve margin.

Investor Lens

An investor defines the metric and reconciles ARR, recognised revenue and cash. Gross and net retention, renewals, price increases, concentration and margin after delivery costs receive more scrutiny than the label itself.

Related Concepts

Revenue GrowthGross MarginCash ConversionCustomer concentration

Cash Conversion

What it is

Cash Conversion measures how much of an operating result becomes cash over a period. The convention must be stated: for example, Operating Cash Flow/EBITDA or Free Cash Flow/EBITDA.

Why it matters

It connects economic performance with the liquidity available to fund investment, reduce debt or support growth. Its pattern over time helps show whether EBITDA is economically monetisable.

What it misses

No percentage can be interpreted without knowing whether taxes, interest, working-capital movements and CapEx are included. Seasonality, supplier timing or deferred investment can temporarily inflate the ratio.

Investor Lens

An investor starts with the EBITDA–OCF–FCF bridge, normalises seasonality and separates maintenance from growth CapEx. The question is whether conversion remains repeatable as the business scales, not whether the latest year was favourable.

Related Concepts

EBITDAOperating Cash FlowFree Cash FlowWorking Capital

ROIC — Return on Invested Capital

What it is

ROIC measures the operating return generated by capital invested in the business. It commonly relates after-tax operating profit to operating capital employed, using a consistent period and perimeter.

Why it matters

It helps distinguish growth that consumes capital from growth capable of earning an economic return on reinvestment. It is therefore a lens on capital-allocation quality, not merely period profitability.

What it misses

Calculation and comparability depend on normalised tax, goodwill, leases, intangible assets and the use of average or point-in-time capital. Strong historical ROIC does not ensure that new investment will earn the same return; sector, cycle and risk remain material.

Investor Lens

An investor reads the ROIC trajectory and returns on incremental capital alongside growth, competitive advantage and future funding needs. Value creation requires expected returns to justify capital and risk, without treating comparison with the cost of capital as certainty.

Related Concepts

EBITFree Cash FlowCapExWACC

ROE — Return on Equity

What it is

ROE measures net income attributable to shareholders against the book equity, preferably average equity, employed during the period. It therefore reflects operating performance, financing structure, tax and accounting policy.

Why it matters

It shows the accounting return produced on shareholders' capital and can help read profitability and balance-sheet discipline over time. Used with ROIC, it clarifies how far equity returns also depend on leverage.

What it misses

Debt, buybacks, distributions, impairments or a reduced equity base can raise ROE without improving business economics. The ratio loses meaning with negative or very low equity, while sector and accounting differences constrain comparison.

Investor Lens

An investor separates the contribution of margins, asset use and leverage, while testing earnings quality and capital genuinely at risk. A high level is not treated as stand-alone evidence of quality or value.

Related Concepts

ROIC — Return on Invested CapitalEquity ValueLeverageFree Cash Flow

Why do Private Equity funds look at EBITDA?

Private Equity funds look at EBITDA because it provides a concise view of operating performance before financing structure, tax and depreciation and amortisation effects.

Context

That basis makes it easier to compare businesses with different debt levels and is often the starting point for valuation using multiples such as EV/EBITDA.

It is not a measure of cash available. Analysis also covers earnings quality, working capital, CapEx, cash taxes, volatility and the proportion of EBITDA that actually converts into cash flow.

Investor Lens

The level of EBITDA matters less than its quality, sustainability, cash conversion and ability to grow without disproportionate capital absorption.

What is the difference between reported EBITDA and Adjusted EBITDA?

Reported EBITDA is the operating result presented in the company's reporting, while Adjusted EBITDA aims to show normalised performance by adjusting for items considered non-recurring, exceptional or unrepresentative.

Context

The distinction matters in M&A because each adjustment changes the earnings base to which a multiple may be applied. Normalisation should separate genuinely exceptional effects from costs required to operate the business.

Adjustments are not automatically accepted by an investor. They need to be evidenced, consistent with prior periods and sustainable under due diligence and Quality of Earnings analysis.

Investor Lens

The institutional question is not how much EBITDA can be added on paper, but which level of profitability genuinely represents the business being assessed.

02 — CASH & LEVERAGE

Earnings tell one part of the story. Cash reveals how much value can be financed.

Operating Cash Flow

What it is

Operating Cash Flow (OCF) is cash generated by operating activities, normally after operating costs, taxes and working-capital movements under the stated convention. It is not an automatic conversion of EBITDA.

Why it matters

It shows whether the day-to-day model produces liquidity before investment in assets and before financing structure. That is the starting point for understanding whether growth can be funded without continual external capital.

What it misses

OCF does not measure the CapEx required to maintain or expand productive capacity. Accounting standards and cash-flow statements can classify interest and taxes differently, so the perimeter must be stated before comparing figures.

Investor Lens

An investor starts with the cash-flow statement and reconciles EBITDA, earnings, non-cash items, working capital, taxes and interest. Collections, inventory and seasonality are tested to separate structural weakness from a temporary timing effect.

Related Concepts

EBITDACash ConversionWorking CapitalFree Cash Flow

Free Cash Flow

What it is

Free Cash Flow (FCF) is the cash remaining after operations and required investment. In valuation, unlevered FCF is measured before interest and debt repayment and discounted at WACC to estimate Enterprise Value; levered FCF is after debt service and belongs to equity.

Why it matters

It connects performance, reinvestment and resources actually available to reduce debt, fund acquisitions or return capital. Stating the convention avoids comparing cash available to all capital providers with cash available only to shareholders.

What it misses

High FCF can reflect deferred maintenance or growth investment, while negative FCF may fund rational expansion. Investment, working capital, taxes and interest must be made explicit because company definitions are not always comparable.

Investor Lens

Institutional analysis separates unlevered and levered FCF, maintenance and growth CapEx, and normalised working-capital needs. It also tests cash under different revenue, margin and investment scenarios rather than relying only on the base case.

Related Concepts

Operating Cash FlowCapExCash ConversionNet Debt

Working Capital

What it is

Net operating working capital is operating current assets, such as receivables and inventory, less operating current liabilities, such as trade payables. An increase in the requirement consumes cash; a release provides it.

Why it matters

It shows how much liquidity the business must advance before sales become collections. Rapid growth can therefore fund more receivables and inventory before producing cash, even while EBITDA is rising.

What it misses

The appropriate level depends on sector, seasonality, terms and the items included. A year-end snapshot may be unusual, and stretching suppliers can improve cash today while transferring pressure to the supply chain.

Investor Lens

An investor normalises the monthly profile and analyses DSO, DIO and DPO alongside overdue balances, returns and obsolescence. The question is whether terms reflect sustainable commercial strength or a temporary action the plan cannot repeat.

Related Concepts

Operating Cash FlowCash ConversionRevenue GrowthFree Cash Flow

CapEx

What it is

CapEx, or Capital Expenditure, is spending to acquire or improve tangible and intangible assets such as plants, equipment, software and facilities. Maintenance CapEx preserves existing capacity; Growth CapEx expands it.

Why it matters

It connects current profitability with the future ability to serve customers and defend the competitive position. The reinvestment required determines how much EBITDA can genuinely become distributable cash or repay debt.

What it misses

The maintenance/growth split requires judgement and economic benefits arrive over time. Spending on people, development or technology may be expensed rather than capitalised, making reported CapEx an incomplete measure of reinvestment.

Investor Lens

A buyer rebuilds historical spend, the asset-replacement cycle and the pipeline, testing whether the plan understates maintenance. It also assesses the return and timing of Growth CapEx rather than treating every project as value creation.

Related Concepts

Free Cash FlowEBITCash ConversionWorking Capital

Net Debt

What it is

Net Debt is gross financial debt less available cash and cash equivalents. In a transaction, the perimeter may also include debt-like items, leases, overdue liabilities and other items defined in the documentation.

Why it matters

It measures financial exposure after available liquidity and helps bridge Enterprise Value to Equity Value. It also indicates how much future cash is already committed to servicing capital.

What it misses

Not all cash is distributable and not every relevant liability appears as a bank loan. The treatment of leases, factoring, earn-outs, taxes and debt-like items can materially change the result.

Investor Lens

An investor builds a bridge from gross debt to Net Debt using verified bank balances, restricted cash and debt-like liabilities. The delivered working-capital level and transaction-specific adjustments are reviewed alongside the headline balance.

Related Concepts

Enterprise ValueEquity ValueNet Debt / EBITDAFree Cash Flow

Net Debt / EBITDA

What it is

Net Debt/EBITDA compares net debt with EBITDA for a defined period, often historical, forecast or adjusted. It is a summary leverage measure, not the number of years the company will actually take to repay debt.

Why it matters

It lets lenders and investors relate debt, operating scale and potential deleveraging capacity. It is useful for reading covenants and capital structure when the denominator genuinely represents normalised economics.

What it misses

It treats EBITDA as a proxy for cash and ignores CapEx, taxes, working capital and interest. With zero or negative EBITDA the ratio is not meaningful; interpretation also depends on sector, cash-flow stability, cyclicality, growth, asset intensity and financing structure.

Investor Lens

An investor defines debt and EBITDA precisely, tests adjustments and follows the forward trajectory. Revenue, margin, rate, CapEx and working-capital downside cases matter more than any universal threshold when assessing debt-service sustainability.

Related Concepts

Net DebtEBITDALeverageInterest Coverage

Interest Coverage

What it is

Interest Coverage measures how many times an operating result covers period interest, typically EBIT/interest or EBITDA/interest under the stated convention. The numerator and interest perimeter must remain consistent.

Why it matters

It indicates resilience to the cost of debt and changes in rates. It complements leverage: two companies with the same Net Debt/EBITDA may have very different ability to pay interest.

What it misses

It does not measure principal repayment, CapEx or working-capital needs. Negative EBIT makes the ratio economically uninformative, while capitalised, one-off or floating-rate interest can distort comparisons.

Investor Lens

Banks and investors review the contractual definition and stress margins, rates and refinancing. The question is not merely how many times interest is covered today, but whether coverage remains credible in a downside case.

Related Concepts

EBITNet Debt / EBITDANet DebtFree Cash Flow

Debt-to-Equity

What it is

Debt-to-Equity compares financial debt with book shareholders' equity under a definition that may include or exclude leases and other liabilities. It describes capital composition, not the dynamic ability to generate cash.

Why it matters

It helps show how financial risk is shared between creditors and shareholders and how distributions, losses or capital contributions have shaped the balance sheet. It complements rather than replaces cash-flow metrics.

What it misses

Book equity can diverge from economic value and become negative after losses or distributions, making the ratio uninformative or misleading. Debt definition and intangible assets can further reduce comparability.

Investor Lens

An investor reads the ratio with Net Debt, cash flow, maturities and covenants. The analysis asks whether book equity is genuinely available to absorb volatility, rather than relying on a balance-sheet snapshot alone.

Related Concepts

Net DebtEquity ValueLeverageFree Cash Flow
03 — VALUATION

Price and value are not the same thing.

Enterprise Value

What it is

Enterprise Value (EV) is the value attributed to the operating business for all capital providers, before considering how it is financed. In a simplified bridge it starts with Equity Value and adds Net Debt, subject to relevant adjustments.

Why it matters

It enables comparison between companies with different debt structures and underpins multiples such as EV/EBITDA and EV/Revenue. In a transaction it describes the operating asset, not the final proceeds received by shareholders.

What it misses

EV is not a universally exhaustive measure of price: non-operating assets, leases, debt-like items, restricted cash, working capital and contract terms may require transaction-specific adjustments. It does not by itself capture a buyer's synergies or risk assessment.

Investor Lens

An investor tests the perimeter, EBITDA quality and every item bridging EV to equity consideration. Growth, cash conversion, risk, competitive position and plan credibility are read alongside the number rather than treated as separate from it.

Related Concepts

Equity ValueNet DebtEV/EBITDADCF — Discounted Cash Flow

Equity Value

What it is

Equity Value is the value attributed to shareholders' capital after considering net financial debt and other relevant adjustments. In simplified form: Enterprise Value − Net Debt ± other adjustments = Equity Value.

Why it matters

It is the economic reference for the value of the stake transferred and the gross proceeds due to shareholders in a sale. It makes clear the distinction between the operating business and claims held by other capital providers.

What it misses

The bridge is not a universally exhaustive list: debt-like items, unavailable cash, target working capital, investments and specific liabilities can change the outcome. Equity Value is also a poor measure for comparing operating efficiency across different capital structures.

Investor Lens

An investor rebuilds the bridge line by line and tests the negotiated definitions of Net Debt and working capital. Dilution, minority rights, guarantees and the price mechanism are considered before equating Equity Value with net cash proceeds.

Related Concepts

Enterprise ValueNet DebtFree Cash FlowTransaction Multiples — Precedent Transactions

EV/EBITDA

What it is

EV/EBITDA is Enterprise Value divided by EBITDA for a selected period, which may be historical, forecast or adjusted. The multiple expresses how many times an operating-profit measure the market or a transaction attributes to the enterprise.

Why it matters

It provides a rapid language for comparing companies and deals with different financing structures. It is a useful starting point for triangulating value, not a shortcut around performance analysis.

What it misses

EBITDA excludes CapEx, working capital, taxes and interest, and the ratio becomes uninformative when EBITDA is zero or negative. An observed multiple may also reflect perimeter, control, liquidity or synergy premiums and discounts.

Investor Lens

Two companies with identical EBITDA can command different multiples because of growth, margin quality, recurring revenue, cash conversion, customer concentration, scalability, management depth, sector, risk and strategic optionality. Reported and Adjusted EBITDA must also be tested.

Related Concepts

Enterprise ValueEBITDAQuality of EarningsComparable Company Analysis — Trading Comparables

EV/Revenue

What it is

EV/Revenue is Enterprise Value divided by revenue for a stated period. It is a multiple of commercial scale rather than profitability and requires a consistent definition of recognised revenue and perimeter.

Why it matters

It can help read expanding companies or models that have not yet reached positive EBITDA while margins and cash are still being built. It is most useful when compared with businesses that have similar unit economics.

What it misses

Revenue does not prove value creation: low margins, acquisition costs, CapEx and working capital can make growth destructive. When EBITDA is negative the multiple avoids a negative denominator, but it does not resolve uncertainty about future profitability.

Investor Lens

An investor examines gross margin, retention, churn, cost to serve and the credible route to EBITDA and FCF. One-off revenue, mix and recognition are normalised before an observed multiple is transferred to another business.

Related Concepts

Enterprise ValueRevenue GrowthGross MarginRecurring Revenue

P/E

What it is

P/E, or Price-to-Earnings, divides price per share by earnings per share (EPS); equivalently, it divides equity value by net income attributable to shareholders, on a consistent basis. Unlike EV-based multiples, it already incorporates interest, taxes and the financing structure.

Why it matters

It is familiar in public markets and can help compare mature companies with reasonably consistent accounting and capital structures. In the right context it summarises how much the market pays for a unit of earnings.

What it misses

Tax rates, leverage, exceptional items, amortisation and distribution policy can distort it; with zero or negative earnings it is uninformative. In M&A and Private Equity it separates operating performance from financing less effectively.

Investor Lens

An investor rebuilds normalised earnings and tests quality, growth and capital requirements before comparing P/E. It is generally a cross-check alongside EV-based metrics and a direct reading of cash generation.

Related Concepts

Equity ValueEV/EBITDADCF — Discounted Cash Flow

DCF — Discounted Cash Flow

What it is

DCF estimates Enterprise Value by discounting expected unlevered Free Cash Flow from the operating business at an appropriate WACC. It is a model of scenarios and assumptions, not proof of a true value independent of judgement.

Why it matters

It makes explicit how revenue, margins, reinvestment and risk are expected to produce cash over time. It allows strategic scenarios to be compared and shows which operating levers support value beyond a multiples benchmark.

What it misses

It is analytically disciplined but highly sensitive to growth, margins, cash conversion, CapEx, working capital, WACC and terminal growth. Terminal Value can represent a substantial share of the total result, making long-term assumptions and sensitivity analysis decisive.

Investor Lens

An investor judges the assumptions, not only the central output: unlevered FCF, WACC and terminal value are reconciled, then range, downside and consistency with market evidence and management capacity are tested. Robustness comes from several credible scenarios.

01 — FREE CASH FLOW FORECAST

Revenue, margins, operating taxes, working-capital movements and CapEx are projected to derive unlevered FCF during the explicit period. The forecast must distinguish growth from the reinvestment it requires rather than treating EBITDA as cash.

02 — DISCOUNT RATE / WACC

WACC discounts the cash flows for operating risk and a capital mix appropriate to the enterprise. Judgement is required on peers, risk premium, cost of debt, tax and the reference financing structure.

03 — TERMINAL VALUE

Terminal Value represents cash beyond the explicit forecast, using a perpetuity-growth method or an exit multiple. It can weigh heavily on total value, so steady-state growth, margins, reinvestment and sensitivity are central rather than incidental.

Related Concepts

Free Cash FlowWACCTerminal ValueEV/EBITDA

WACC

What it is

WACC, or Weighted Average Cost of Capital, is the after-tax weighted cost of debt and equity under a capital mix consistent with the business and its risk. In a DCF it discounts unlevered FCF.

Why it matters

It translates the return required by capital providers into a rate for taking the enterprise's operating risk. A coherent rate compares future enterprise cash with invested capital without confusing enterprise and equity flows.

What it misses

It is an estimate rather than a single observable measure: peers, beta, risk premium, debt cost, tax and capital structure involve sensitive choices. A poorly calibrated WACC, or one applied to levered cash flows, makes the valuation conceptually inconsistent.

Investor Lens

An investor tests whether the risk and capital structure used in WACC fit the business rather than only larger listed peers. Rate and terminal-growth sensitivities are reviewed alongside the operating case, debt profile and terminal value.

Related Concepts

DCF — Discounted Cash FlowTerminal ValueFree Cash FlowNet Debt

Cost of Equity

What it is

Cost of Equity is the return shareholders require for bearing the risk of investing in a company. It forms the equity component of WACC and may be estimated, among other approaches, with CAPM, which connects a risk-free rate, systematic risk and the market risk premium.

Why it matters

It makes explicit that equity has an economic cost despite carrying no contractual interest charge. It can discount cash flows available to shareholders or combine with the cost of debt to produce a rate consistent with operating cash flows.

What it misses

It is neither directly observable nor unique. Under CAPM, beta, risk-free rate and market premium involve estimates consistent with currency, market and horizon; additional adjustments require evidence rather than arbitrary premiums.

Investor Lens

An investor tests consistency across business risk, financing structure and the cash flows being discounted. CAPM is a contextual reference, not a formula that removes judgement or independently produces a certain value.

Related Concepts

WACCDCF — Discounted Cash FlowEquity ValueROIC — Return on Invested Capital

Terminal Value

What it is

Terminal Value is the present value of cash generated beyond the explicit DCF horizon. It may be estimated from perpetual growth in a normalised FCF or an exit multiple, with assumptions consistent with the business.

Why it matters

It captures the economic continuity of the company after the detailed plan period. It requires explicit judgement about steady-state margins, reinvestment, growth and the competitive advantages that can reasonably endure.

What it misses

It can form a substantial component of Enterprise Value, making the result highly sensitive to WACC, terminal growth and normalised FCF. It is not a neutral residual or permission to assume perpetual growth without capital and defensible advantages.

Investor Lens

An investor tests terminal value through sensitivity, multiple cross-checks and a reinvestment path consistent with steady-state growth. If the output depends mostly on the distant horizon, the discussion belongs on assumptions rather than apparent numerical precision.

Related Concepts

DCF — Discounted Cash FlowWACCFree Cash FlowEV/EBITDA

Comparable Company Analysis — Trading Comparables

What it is

Comparable Company Analysis, also called Trading Comparables or comparable-companies analysis, estimates a value range from multiples at which comparable listed companies are valued by the market. Selection depends on business model, sector, growth, margins, risk and scale, not merely an industry label.

Why it matters

They provide an observable, current reference for calibrating EV or equity and for checking a DCF. They help distinguish a company-specific assumption from what public markets recognise in relevant peers.

What it misses

Listed companies have different liquidity, governance, capital access and scale from a private SME; market period and sentiment also move multiples. A peer's multiple does not automatically transfer its quality, risk or control rights to the target.

Investor Lens

An investor builds a defensible peer set, uses distributions rather than one data point, and normalises period, accounting and capital. Size, liquidity, growth and margin differences are considered before applying any discount or premium.

Related Concepts

EV/EBITDAEV/RevenueEnterprise ValueTransaction Multiples — Precedent Transactions

Transaction Multiples — Precedent Transactions

What it is

Transaction Multiples, also called Precedent Transactions or comparable-transaction multiples, use multiples observed in M&A deals involving comparable companies. The data reflects the price paid for a specific perimeter, stake and negotiating context, not an abstract quotation for the business.

Why it matters

They bring valuation closer to private acquisition reality and may include control and synergies that market prices do not express in the same way. They help frame expectations and transaction dynamics.

What it misses

Public data is incomplete, and deals differ in urgency, financing, perimeter, quality, market cycle and buyer synergies. A control or strategic premium paid in one case is not automatically repeatable.

Investor Lens

An investor reconstructs the deal's EV, EBITDA or revenue and separates control, synergy and exceptional-condition effects. Economic comparability matters more than recency, and the method is triangulated with trading comps and DCF.

Related Concepts

EV/EBITDAComparable Company Analysis — Trading ComparablesEnterprise ValueEquity Value

Pre-Money Valuation

What it is

Pre-Money Valuation is the equity value attributed to a company immediately before a new capital contribution. Together with the investment and its associated rights, it provides the basis for determining the economic ownership of new and existing shareholders.

Why it matters

It separates the negotiated value of the company from the capital entering it. This makes the dilution implied by an equity raise, and the relationship between funding needs and ownership, more legible.

What it misses

The simplified relationship with Post-Money does not capture the entire structure: convertibles, option pools, tranches, liquidation preferences and other rights can alter ownership and economics. It is not synonymous with Enterprise Value.

Investor Lens

An investor reconciles the amount, instruments, fully diluted ownership and rights rather than reading only the headline value. For the company, the relevant questions include how the capital funds the plan and which governance terms accompany the new stake.

Related Concepts

Post-Money ValuationEquity ValueInvestment ReadinessGovernance

Post-Money Valuation

What it is

Post-Money Valuation is the equity value attributed to a company immediately after a new capital contribution. In a simple structure it equals Pre-Money Valuation plus the new capital invested.

Why it matters

It provides the economic denominator for reading the new investor's ownership after financing. It connects valuation, capital raised and dilution in one representation.

What it misses

The simple arithmetic relationship may not describe effective economics when convertibles, option pools, tranches or preferential rights exist. It does not establish that the entire company could be sold at that value and it is not Enterprise Value.

Investor Lens

Analysis covers the fully diluted cap table, instrument terms, governance and use of funds. The number is useful only alongside the rights granted and the operating assumptions supported by the new capital.

Related Concepts

Pre-Money ValuationEquity ValueInvestment ReadinessGovernance

What is the difference between Enterprise Value and Equity Value?

Enterprise Value is the value attributed to the operating business regardless of how it is financed; Equity Value is the value attributable to shareholders after net financial debt and other relevant adjustments have been considered.

Context

EV is commonly used for multiples such as EV/EBITDA because it allows businesses with different financing structures to be compared. Equity Value brings the analysis to the stake being transferred and the gross consideration attributable to shareholders.

An offer stated in Enterprise Value therefore does not necessarily equal what shareholders receive. Perimeter, negotiated definitions and the reference date determine the bridge between the two measures.

Investor Lens

Whenever someone refers to the value of a company, the first question is whether they mean Enterprise Value or Equity Value; confusing them obscures the economics of the offer.

How do you move from Enterprise Value to Equity Value?

The move from Enterprise Value to Equity Value is normally shown through an Equity Bridge that subtracts Net Debt and includes the other relevant adjustments specified for the transaction.

Context

The simplified presentation is an economic guide, not a universal checklist. Depending on the deal, cash, debt, debt-like or cash-like items, working capital and other transaction-specific lines may be relevant.

The actual bridge depends on the reference date, price mechanism and definitions negotiated by the parties. The value of the business and the value attributable to shareholders are therefore not necessarily the same amount.

Investor Lens

An investor rebuilds the bridge line by line and tests the definition of every item before interpreting the value assigned to equity.

How does the EV/EBITDA multiple work?

The EV/EBITDA multiple relates a company's Enterprise Value to its EBITDA and expresses how many times the operating result is reflected in the valuation.

Context

It is used to compare companies and transactions with comparable business models, but requires consistency in period, perimeter, reported or adjusted metric and earnings quality.

The observed multiple reflects expectations about growth, margins, risk, cash generation, competitive position and future prospects. It does not determine a correct value on its own and cannot replace an analysis of the business.

Investor Lens

A multiple is a summary of market expectations about the quality and durability of future value creation, not a permanent property of the company.

Why can two companies with the same EBITDA be valued differently?

Two companies with the same EBITDA can have different values because the market also assesses the quality, sustainability and risk profile of the business producing that result.

Context

At the same EBITDA, the following can differ:

Recurring revenue, margin stability, cash conversion, CapEx requirements, customer concentration, key-person dependence, scalability, governance, management depth and future growth opportunities all change the risk assessment.

Sustainable and predictable growth, strong cash generation and less reliance on individual customers or people can support a different view from an equally large but more fragile headline result.

  • growth and margin sustainability
  • recurring revenue and customer concentration
  • cash conversion and investment requirements
  • competitive position, governance and management
  • operating risk and future opportunities

Investor Lens

The multiple does not simply reward EBITDA: it reflects expectations about the quality and duration of future value creation.

04 — M&A

A transaction is not just about the price.

Strategic buyer

What it is

A strategic buyer is a company assessing an acquisition to extend its industrial, commercial or technological perimeter.

Why it matters

Its rationale shifts the conversation beyond price toward industrial logic: access to markets, capabilities, production capacity or competitive positioning.

What it misses

Industrial interest does not guarantee a stronger offer or effective integration. Expected synergies may be uncertain or require significant investment.

Investor Lens

An investor examines the fit between the asset, the industrial plan, integration capacity, organisational culture and post-closing responsibilities.

Related Concepts

SynergiesDue diligenceStrategic investor fit

Financial sponsor

What it is

A financial sponsor is an institutional investor acquiring an equity stake to support growth and create value over time.

Why it matters

It brings capital, governance discipline and a structured view of growth drivers, risk management and possible future options.

What it misses

Capital does not replace industrial quality. A sponsor's mandate, time horizon and realisation objectives may differ from those of the entrepreneur.

Investor Lens

The discussion considers management, cash generation, governance, execution capability, plan resilience and the fit between partner and trajectory.

Related Concepts

LBO — Leveraged BuyoutValue creation planManagement rolloverStrategic investor fit

Control premium

What it is

A control premium is the component of value associated with the direction and decision rights obtained through an acquisition of control.

Why it matters

It distinguishes the value of a controlling interest from a stake without the ability to shape strategy and management.

What it misses

It is neither a fixed percentage nor an automatic entitlement for a buyer. It depends on governance, liquidity, process competition and credible synergies.

Investor Lens

Institutional analysis separates stand-alone value, acquired rights and buyer-specific benefits, avoiding the capitalisation of purely theoretical opportunities.

Related Concepts

Enterprise ValueEquity ValueStrategic buyer

Synergies

What it is

Synergies are incremental benefits expected from combining two organisations, such as additional revenue, efficiencies or shared capabilities.

Why it matters

They make the industrial rationale explicit and explain why a buyer may value an asset differently from its stand-alone position.

What it misses

Synergies may require time, integration costs and organisational change. An undocumented estimate is not value already realised.

Investor Lens

Analysis looks for measurable drivers, owners, timing, operating dependencies and execution risks, separating buyer benefits from intrinsic business quality.

Related Concepts

Strategic buyerDue diligenceAdd-on acquisitionValue creation plan

Due diligence

What it is

Due diligence is a structured review of financial, commercial, operational, tax and legal information before a transaction.

Why it matters

It reduces information asymmetry and tests whether results, risks, contracts, assets and prospects match the initial representation.

What it misses

It does not remove uncertainty or replace strategic judgement. Conclusions depend on scope, available evidence and the questions asked.

Investor Lens

An investor connects the workstreams: normalised performance, customers, working capital, people, governance, contingent liabilities and plan execution.

Related Concepts

Quality of EarningsEnterprise ValueSPA — Share Purchase AgreementInvestment Readiness

Quality of Earnings

What it is

Quality of Earnings assesses how far reported results reflect a sustainable, recurring and representative earnings base from ordinary activity.

Why it matters

It helps establish whether historical EBITDA is a reliable starting point for understanding performance, value and prospects.

What it misses

Normalisations require judgement and do not create a certain forecast. Adjusted earnings alone do not describe cash needs or risk.

Investor Lens

Attention goes to non-recurring items, cut-off, customer concentration, pricing, margins, owner costs and consistency between earnings and cash.

Related Concepts

EBITDADue diligenceCash ConversionInvestment Readiness

Earn-out

What it is

An earn-out is a portion of consideration made conditional on future performance metrics or events defined in the agreement.

Why it matters

It can bridge a gap between seller and buyer expectations while keeping attention on continuity and post-closing results.

What it misses

Its effectiveness depends on precise metrics and control over the decisions that influence them. It can create complexity, disputes or opportunistic behaviour.

Investor Lens

The discussion examines definitions, period, accounting principles, data access, management responsibilities and scenarios that make outcomes verifiable.

Related Concepts

SPA — Share Purchase AgreementCompletion accountsQuality of Earnings

Locked box

What it is

A locked box sets the price by reference to historical financial information, fixing an economic date and restricting subsequent transfers of value.

Why it matters

It provides greater price certainty at closing and makes the review of the reference-date position particularly important.

What it misses

Certainty depends on reliable historical accounts and a clear leakage definition. It does not automatically absorb operating changes or risks emerging later.

Investor Lens

An investor assesses the reference-date quality, flows between signing and closing, permitted items and the traceability of information.

Related Concepts

Completion accountsSPA — Share Purchase AgreementDue diligenceNet Debt

Completion accounts

What it is

Completion accounts are post-closing accounts used to determine, under agreed principles, cash, debt, working capital and other price adjustments.

Why it matters

They link the final consideration to the company's actual position at completion rather than fixing it entirely from earlier information.

What it misses

The outcome may depend on definitions, estimates and consistent application; interpretive differences can make the final determination complex.

Investor Lens

Quality depends on clear principles, continuity with historical reporting, preparation responsibilities and verifiability of each item.

Related Concepts

Locked boxSPA — Share Purchase AgreementNet DebtQuality of Earnings

SPA — Share Purchase Agreement

What it is

An SPA, or Share Purchase Agreement, is the agreement governing the sale of shares and the transaction's principal economic and operational conditions.

Why it matters

It makes price, adjustment mechanism, conditions, information duties and allocation of key risks explicit between the parties.

What it misses

It is a contractual framework for a specific transaction, not a guarantee of industrial outcomes or a substitute for professional advice.

Investor Lens

The economic reading tests consistency between price structure, due diligence, protections, interim governance and the plan's assumptions.

Related Concepts

Due diligenceEarn-outLocked boxCompletion accounts

How does Net Debt affect the sale price of a company?

Net Debt, or Net Financial Position under the definitions used in the deal, connects Enterprise Value to Equity Value and generally reduces the value attributable to shareholders when net financial debt is present.

Context

Net cash can have the opposite effect, subject to the negotiated definitions. Net Debt is not always the simple difference between financial debt and cash: debt-like items, cash-like items, restricted cash and other contractual lines may be included.

The economic value for shareholders therefore depends on the complete bridge, not only on the EBITDA multiple. The reference date and adjustment mechanism are part of the interpretation.

Investor Lens

To understand shareholder value, Net Debt must be read together with the negotiated definition of the Equity Bridge.

How does working capital affect the price in an M&A transaction?

Working capital can affect price because a buyer expects to receive a business with the normal level of operating resources required to continue running after completion.

Context

Trade receivables, inventory and supplier payables absorb or release resources through the operating cycle. Transactions often define a normalised working-capital level consistent with the business model and its seasonality.

If the position at completion differs from the agreed reference, the contractual mechanism may produce a price adjustment. The economic principle is not to reward an isolated snapshot but to deliver an operation with the resources it normally needs.

Investor Lens

Growth that absorbs substantial working capital has different economics from growth that converts into cash quickly.

Why can the price at closing differ from the value initially agreed?

The price at closing can differ from the initially agreed value because a transaction may include contractual mechanisms and adjustments linked to the company's financial position.

Context

Depending on the structure, Net Debt, working capital, debt-like and cash-like items, leakage, earn-outs and other expressly negotiated lines may matter. Completion Accounts and a Locked Box manage the relationship between the reference date, agreed value and position at closing differently.

An earn-out is consideration conditional on future performance or events: it may accrue and be paid after closing, rather than at closing. A headline valuation or Equity Value therefore does not automatically equal the amount shareholders receive at completion.

Investor Lens

Consideration must be read through the price mechanism and payment timing in the transaction documents, not only through the value announced.

05 — PRIVATE EQUITY

Investor returns stem from the transformation of the enterprise.

Private Equity (Strategy)

What it is

Private Equity is equity capital invested in unlisted companies through the acquisition of an ownership interest.

Why it matters

It is a form of ownership investment with a defined horizon, in which return, risk and governance rights depend on the interest held.

What it misses

It does not describe one uniform model: ownership stakes, rights, duration, use of capital and investor role vary by fund and transaction.

Investor Lens

Its structure is understood by considering ownership, governance, investment thesis, time horizon and the anticipated route to exit.

Related Concepts

Financial sponsorLBO — Leveraged BuyoutGovernanceValue creation plan

Private Debt

What it is

Private Debt is financing provided through privately negotiated debt instruments rather than through a public market offering.

Why it matters

It sets contractual terms for return, maturity, repayment, security and any covenants, without necessarily introducing a new equity owner.

What it misses

Forms and risk levels vary materially; cost and sustainability depend on structure, seniority, cash flows and repayment capacity.

Investor Lens

The reading considers financing purpose, repayment priority, maturities, covenants, security and the resilience of cash flows.

Related Concepts

Net DebtInterest CoverageFree Cash FlowDebt-to-Equity

Industrial Partner

What it is

An Industrial Partner is an operating company that participates in a corporate or strategic project, contributing capabilities or market access in addition to any capital.

Why it matters

The relationship may be based on commercial, technological, production or geographic complementarity and may take different ownership or contractual forms.

What it misses

Strategic interest does not ensure alignment: integration, governance, autonomy, culture and long-term objectives require separate assessment.

Investor Lens

The analysis considers industrial rationale, contributed resources, scope of collaboration, decision rights and organisational compatibility.

Related Concepts

Strategic buyerSynergiesGovernanceStrategic investor fit

Club Deal

What it is

A Club Deal is an investment in which several investors participate jointly in a specific transaction, often through a dedicated vehicle.

Why it matters

The structure brings together capital and capabilities from several parties around one investment and defines their interests and rights.

What it misses

It is not a uniform category or necessarily a fund; governance, responsibilities, liquidity and decision rules depend on the transaction agreements.

Investor Lens

It is described by considering investor composition, vehicle, allocation of rights, decision process and intended duration.

Related Concepts

GovernanceFinancial sponsorManagement rolloverPrivate Equity (Strategy)

Search Fund

What it is

A Search Fund is a model in which one or more entrepreneurs raise capital to search for, acquire and subsequently lead a single company.

Why it matters

It normally separates a search phase from acquisition and management, with investor backing across the different stages.

What it misses

Structure, financing and investor rights vary; identifying a company and completing an acquisition are not guaranteed.

Investor Lens

The reading distinguishes search and acquisition capital, target criteria, the entrepreneur's future role and post-transaction governance.

Related Concepts

Due diligenceGovernanceManagement depthInvestment Readiness

SPAC

What it is

A SPAC is a listed company formed to raise capital and subsequently identify a business with which to complete a combination.

Why it matters

Before the combination it normally has no operating business of its own; the transaction with the target may bring that company to public markets.

What it misses

Timing, approvals, redemption rights, economics and market conditions affect the outcome; it is distinct from traditional Private Equity.

Investor Lens

Understanding it involves examining the sponsor, capital raised, vehicle terms, selection process, combination and resulting ownership structure.

Related Concepts

Due diligenceEquity ValueGovernancePrivate Equity (Strategy)

LBO — Leveraged Buyout

What it is

An LBO is an acquisition in which equity and debt together finance the purchase of a controlling interest.

Why it matters

It makes visible how entry price, capital structure, cash generation and the industrial path interact in value creation.

What it misses

Debt amplifies positive and negative outcomes. Sustainability depends on cash flow, volatility, investment needs, financing conditions and business performance.

Investor Lens

An investor examines cash generation, progressive deleveraging, operational improvement and an exit value consistent with the market context.

Related Concepts

LeverageNet Debt / EBITDAFree Cash FlowValue creation plan

Entry multiple

What it is

An entry multiple is the multiple applied to a company metric, often EBITDA, to express the implied value at the time of investment.

Why it matters

It describes the valuation starting point and allows price, business quality and embedded expectations to be considered together.

What it misses

A multiple cannot be read without a normalised metric, sector, growth, risk and cash quality. An isolated numerical comparison can mislead.

Investor Lens

The assessment considers earnings sustainability, recurring revenue, positioning, capital required for growth and the difference between theoretical value and negotiated price.

Related Concepts

Enterprise ValueEV/EBITDAExit multipleQuality of Earnings

Exit multiple

What it is

An exit multiple is the multiple applied to a company metric to estimate value at a disposal or subsequent change of ownership.

Why it matters

It shows how returns depend not only on internal growth but also on market perception and the conditions prevailing at exit.

What it misses

It cannot be observed with certainty in advance. Comparing entry and exit can hide changes in sector, risk, liquidity and performance quality.

Investor Lens

An investor tests whether the outcome comes from industrial improvement, earnings growth, debt reduction or simple multiple expansion.

Related Concepts

Entry multipleEV/EBITDAIRR — Internal Rate of ReturnValue creation plan

Leverage

What it is

Leverage describes the use of debt relative to equity or a company's economic capacity to finance an investment.

Why it matters

It helps explain how the capital structure distributes risk and return between lenders and shareholders during an investment journey.

What it misses

There is no universally valid threshold. Interpretation depends on sector, cash-flow stability, cyclicality, growth, asset intensity and financing conditions.

Investor Lens

Analysis connects debt, interest, available cash, reinvestment needs and resilience under different operating scenarios.

Related Concepts

LBO — Leveraged BuyoutNet DebtNet Debt / EBITDAFree Cash Flow

IRR — Internal Rate of Return

What it is

IRR is the annual rate that makes the net present value of invested and received cash flows equal to zero, accounting for their timing.

Why it matters

It captures the speed at which capital generates a return and, cautiously, allows journeys of different duration to be compared.

What it misses

It is highly sensitive to cash-flow timing and does not show how many pounds or euros were created. A high IRR is not necessarily a better investment.

Investor Lens

It should be read with duration, size and certainty of cash flows, MOIC, risk, leverage, operational growth and exit conditions.

Related Concepts

MOIC — Multiple of Invested CapitalLBO — Leveraged BuyoutExit multipleValue creation plan

MOIC — Multiple of Invested Capital

What it is

MOIC divides the sum of distributed proceeds and the investment's remaining value by invested capital, without annualising the outcome. For a fully realised investment, there is no remaining value.

Why it matters

It gives an immediate view of capital multiplication and helps describe the absolute value created by the transaction.

What it misses

It ignores time and cash-flow sequence: the same MOIC can result from very different durations. It does not by itself measure risk, liquidity or industrial quality.

Investor Lens

An investor reads it alongside IRR and traces the result to growth, cash generation, debt reduction, multiple movement and distributions.

Related Concepts

IRR — Internal Rate of ReturnLBO — Leveraged BuyoutExit multipleValue creation plan

Buy-and-build

What it is

Buy-and-build is an aggregation strategy that develops a platform through the integration of complementary acquisitions.

Why it matters

It can accelerate scale, geographic coverage, capabilities and breadth of offering where a repeatable industrial rationale exists.

What it misses

Acquisition-led growth does not replace the quality of the initial core. Integration, culture, systems, price and management capacity can constrain outcomes.

Investor Lens

Assessment considers the industrial thesis, selection discipline, operating fit, required capital and the ability to integrate without losing focus.

Related Concepts

Platform companyAdd-on acquisitionSynergiesValue creation plan

Platform company

What it is

A platform company is the business around which a broader, coherent industrial and aggregation project can be developed.

Why it matters

The platform provides the operating, managerial and cultural centre from which capabilities, markets and the value proposition can expand.

What it misses

Size alone does not create a platform. Fundamentals, management, systems, governance and a coherent development thesis are also required.

Investor Lens

An investor examines scalability, leadership, processes, integration potential, positioning and the ability to support add-ons without excessive dependency.

Related Concepts

Buy-and-buildAdd-on acquisitionInvestment ReadinessManagement depth

Add-on acquisition

What it is

An add-on is a complementary acquisition integrated into, or developed alongside, a platform company to strengthen the industrial project.

Why it matters

It can extend capabilities, customers or geographies and make a buy-and-build thesis concrete when it fits the platform.

What it misses

Stated complementarity does not guarantee synergies. Price, overlap, systems and complexity can destroy value when integration is weak.

Investor Lens

The analysis covers the role in the group, platform dependencies, integration plan, accountability, incremental economics and capital needs.

Related Concepts

Platform companyBuy-and-buildSynergiesDue diligence

Management rollover

What it is

Management rollover is the reinvestment by owners or managers of part of the value realised in a transaction into the new ownership structure.

Why it matters

It can align management continuity with participation in future results and make commitment to the next trajectory explicit.

What it misses

It does not by itself resolve divergent objectives, liquidity needs or management gaps. Its meaning depends on governance and effective rights.

Investor Lens

The reading considers future role, incentives, decision rights, key-person dependency and the fit between reinvested capital and responsibility.

Related Concepts

LBO — Leveraged BuyoutFinancial sponsorGovernanceValue creation plan

Value creation plan

What it is

A value creation plan is a structured thesis on the operational, commercial, organisational and financial changes that may increase enterprise value.

Why it matters

It turns a growth promise into a legible framework of priorities, accountabilities, dependencies and progress indicators.

What it misses

It is a hypothesis to be tested, not a return guarantee. It depends on execution, people, investment, market conditions and sustained coherence.

Investor Lens

An investor looks for distinct measurable drivers, realistic timing, capital needs, risks, plan governance and the connection to exit value.

Related Concepts

Buy-and-buildCash ConversionExit multipleInvestment Readiness

How does a Private Equity fund create value?

A Private Equity fund generally seeks to increase the value of its investment through a combination of industrial, operational and financial levers tailored to the company's situation.

Context

Those levers may include:

Organic growth, operational improvement, margin expansion, internationalisation, acquisitions, stronger management, governance, technology, improved cash generation, deleveraging and a stronger strategic position.

Value realised at exit depends on company performance, capital structure, market conditions and the valuation recognised at that time. No single lever makes the outcome certain.

  • growth and industrial positioning
  • operational efficiency and margin quality
  • management, governance and execution capability
  • cash generation, investment and deleveraging
  • acquisitions consistent with the industrial thesis

Investor Lens

Private Equity does not create value through one lever: the strongest investments require a testable industrial thesis and the ability to execute it.

What is a Buy-and-Build strategy and how does it create value?

Buy-and-Build is a strategy in which a platform company develops a broader group through successive acquisitions of complementary businesses, often called add-ons.

Context

Value may come from greater scale, geographic reach, new capabilities, access to customers or channels, integrated products and technology, operating synergies, EBITDA growth and greater strategic relevance.

Simply adding companies together does not guarantee value creation. The quality of acquired assets, price, systems and cultural fit, integration capability and the industrial coherence of the platform all matter.

Investor Lens

Buy-and-Build works when each acquisition strengthens an industrial thesis and a platform capable of integration, rather than replacing strategy with aggregation.

Contextual links

Platform companyInvestment Readiness
06 — INVESTMENT READINESS

Numbers explain the business. Investment Readiness determines its preparedness for capital.

An investor does not evaluate historical results and multiples alone. They evaluate whether the company's future trajectory is understandable, credible, and executable.

Quality of EarningsRecurring Revenue

Investment Readiness

What it is

Mizzau & Partners defines Investment Readiness as a company's ability to translate industrial quality, strategy, governance, management and execution capability into a configuration that is understandable and credible to investors and strategic partners.

The definition in our Approach →

Why it matters

It reduces the distance between underlying quality and external legibility, enabling a more informed dialogue with capital, industrial partners and institutional counterparts.

What it misses

It is not a certification, an investment promise or a transaction outcome. Readiness does not remove risk or replace entrepreneurial judgement.

Investor Lens

An investor looks for consistency across ambition, performance evidence, governance, management, execution capability and future direction, not simply better-organised materials.

Related Concepts

Equity storyManagement depthGovernanceStrategic investor fit

Equity story

What it is

An equity story is the evidence-based strategic narrative explaining how a company creates value and which trajectory it may pursue.

Why it matters

It connects historical performance, positioning, priorities and potential into a legible view for those assessing quality and prospects.

What it misses

It is not promotional presentation and cannot compensate for weak fundamentals. A credible story must remain verifiable and acknowledge its constraints.

Investor Lens

An investor seeks a clear thesis on market, competitive advantage, growth, cash, people, risks and the steps required to make the plan executable.

Related Concepts

Investment ReadinessValue creation potentialScalabilityStrategic investor fit

Management depth

What it is

Management depth describes whether an organisation has the capabilities, responsibilities and managerial layers needed to grow beyond individual key people.

Why it matters

Depth makes execution more credible and reduces the risk that strategy, customers or know-how depend exclusively on the entrepreneur.

What it misses

The number of managers alone does not measure organisational quality. Roles, delegation, incentives, collaboration and actual capability must be tested.

Investor Lens

Attention goes to role succession, decision rights, missing capabilities, retention, reporting systems and the ability to operate at greater scale.

Related Concepts

GovernanceInvestment ReadinessValue creation planStrategic investor fit

Governance

What it is

Governance is the set of roles, rules, bodies and processes through which a company makes decisions, oversees execution and manages stakeholder interests.

Why it matters

Legible governance supports accountability, decision quality and dialogue with a partner entering the capital structure or industrial perimeter.

What it misses

The formal existence of bodies and procedures does not guarantee effective governance. Practice matters: how responsibility, information and conflicts are handled.

Investor Lens

An investor assesses rights, delegation, reporting, board composition, decision processes, risk management and the relationship between ownership and management.

Related Concepts

Investment ReadinessManagement depthStrategic investor fitDue diligence

Scalability

What it is

Scalability is the ability to increase revenue or activity without a proportionate increase in complexity, costs and required capital.

Why it matters

It indicates whether growth can translate into greater scale and value without eroding margins, service quality or operating control.

What it misses

It is not an abstract attribute and does not equal historical growth. It depends on processes, people, technology, capacity, capital and actual demand.

Investor Lens

Analysis covers bottlenecks, marginal economics, recurring revenue, customer dependency, incremental investment and organisational preparedness.

Related Concepts

Recurring RevenueCustomer concentrationValue creation potentialInvestment Readiness

Customer concentration

What it is

Customer concentration describes how far revenue, margin or commercial relationships depend on a limited number of customers or counterparties.

Why it matters

It exposes potential sensitivity to customer loss, buyer power and the transferability of the relationship after a transaction.

What it misses

Concentration is not always negative: it may reflect strong contracts, strategic relationships or a specialist market. Duration and quality matter.

Investor Lens

An investor analyses retention, renewals, margins, contractual dependencies, substitutability, pipeline and realistic diversification plans.

Related Concepts

Recurring RevenueQuality of EarningsScalabilityStrategic investor fit

Strategic investor fit

What it is

Strategic investor fit is the consistency between a company's trajectory and the characteristics of the capital or industrial partner with whom it may develop.

Why it matters

There is no universally right investor: fit shapes dialogue quality, decision alignment and the ability to support the company's next transition.

What it misses

A good fit on paper does not remove future disagreements. It depends on explicit expectations, behaviour, governance, available resources and execution capability.

Investor Lens

The discussion considers the company's ambition, size, sector, ticket, majority/minority position, governance, entrepreneur's role, buy-and-build, internationalisation, holding period, value creation strategy and exit expectations.

Preparing a business for Private Equity →

Related Concepts

Investment ReadinessStrategic buyerFinancial sponsorValue creation plan

Value creation potential

What it is

Value creation potential is the combination of concrete opportunities and organisational capabilities that may improve a company's quality, scale and value over time.

Why it matters

It moves attention from historical results to what can be developed through growth, positioning, efficiency, aggregation or managerial capability.

What it misses

Potential is neither value already realised nor a guaranteed return. It requires testable assumptions, resources, timing, execution and supportive market conditions.

Investor Lens

An investor looks for distinct levers, priorities, required investment, risks, plan ownership and signals separating a real opportunity from a generic narrative.

Related Concepts

Equity storyScalabilityValue creation planInvestment Readiness

What makes an SME interesting to a Private Equity fund?

An SME may be interesting to a Private Equity fund when it combines industrial quality, credible performance and development potential that an investor can understand and assess.

Context

Assessment covers the market and competitive position, historical and prospective growth, margin quality, cash generation, recurring revenue, customer concentration, scalability, management, governance and opportunities for organic or acquisition-led growth.

Being a good business does not automatically mean being ready for institutional engagement. Strategy, numbers, organisation, governance and future direction need to be sufficiently legible, credible and executable; that work does not guarantee investment or remove risk.

Investor Lens

Capital does not assess only what a business is today: it assesses what it can become and how credible the path is to get there.

Contextual links

Preparing a Company for Private Equity
THE BIG PICTURE

Two companies with the same EBITDA can have very different valuations.

Value does not reside in a single number.

It emerges from the combination of growth quality, margin sustainability, cash generation, risk profile, governance, management, competitive moat, and future optionality.

Preparing for institutional capital is not about presenting the same numbers in a better way.

It is about building an enterprise that the market can understand, value, and support through its next phase of scale.

FREQUENTLY ASKED QUESTIONS

Understanding the numbers behind a strategic decision.

No. EBITDA is an earnings measure before interest, taxes, depreciation and amortisation; cash flow records movements in liquidity under a defined reporting perimeter. Working capital, CapEx, cash taxes, interest and other items create the bridge between them, while free cash flow itself has more than one convention. EBITDA can grow while cash is absorbed by inventory, receivables or investment. Analysis should therefore examine conversion, collection and payment timing and reinvestment requirements. A strong margin alone does not establish the amount of cash available.

No. A multiples-based valuation is relative: it compares a business with listed companies or comparable transactions using measures such as EV/EBITDA. A DCF builds an estimate from expected future cash flows discounted at a rate consistent with risk. Results can diverge because they embed different peers, periods, assumptions about growth, margins, reinvestment, WACC and terminal value. Comparing the methods is useful because it makes assumptions visible and tests scenarios; it is not a reason to select whichever approach produces the higher number.

They can be alternatives in some capital structures, but they follow different logics. Private Equity invests in risk capital and shares the growth potential, risk and governance of the investment with the entrepreneur. Private Debt finances the business through debt instruments with defined repayment and return obligations. The appropriate route depends on objectives, funding needs, debt-service capacity, desired control, cash-flow resilience and the company's stage. Neither form is preferable in the abstract: the relevant test is fit with the company's trajectory.

A strategic buyer assesses a company mainly for integration into a broader operating perimeter, seeking commercial, technological or production complementarities. A Private Equity fund generally invests behind a growth and value-creation thesis, using capital, governance and operational or financial levers. The two rationales may assign different value to the same synergies and imply different roles for the entrepreneur. Partner selection should consider integration capability, time horizon, governance, available resources, culture and strategic direction, not only price.

No. Preparing a company to engage with investors can strengthen strategy, governance, management, reporting and execution even when a sale is not imminent. A more legible organisation helps the entrepreneur assess capital alternatives, industrial partnerships, acquisitions, international growth or family continuity with greater clarity. The work should not be a presentation built for one process, but a coherent path aligned with the owner's objectives. Readiness does not guarantee interest or outcomes; it reduces information asymmetry and makes the future trajectory more credible.

RELATED KNOWLEDGE
CONFIDENTIAL DIALOGUE

Understanding value is the first step. Building it comes before the transaction.

Mizzau & Partners works alongside entrepreneurs, families, and management teams to interpret their strategic trajectory, prepare for institutional capital, and evaluate the partner most aligned with their next phase of scale.

SPEAK WITH US →
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