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Private Equity and Venture Capital in Europe by Stefano Caselli

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16.3. Valuation and Managed Risk

16.3.1. Valuation

The price of the LBO includes the funds necessary to buy the target company, which are calculated as the difference between the enterprise value (EV) and the net financial position of the firm to be acquired. The definition of the EV is very important because it represents the first step in a successful buyout. Considering the erratic state of the buyout financial structure, the calculation of the EV is very complex and creates problems when computing the rate used to discount future cash flows.

As explained in Chapter 13 (see the section Enterprise Value Analysis), to obtain a sure and precise EV, cross-validation of the results is realized through the simultaneous use of different approaches ...

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