Value Bridge in a UK Business Sale - From Enterprise Value to Equity Value

Value Bridge in a UK Business Sale - How It Transforms Value

When buyers quote a headline value using a multiple of EBITDA, this refers to the enterprise value, a theoretical figure ignoring the target’s capital structure. Sellers need to know how this becomes equity value, which is the cash they actually receive.

A value bridge in a UK business sale shows how that transformation takes place. It brings together enterprise value with adjustments for debt, cash, and working capital to arrive at the actual net price to shareholders.

What a Typical EV to Equity Value Bridge Looks Like

1. Start with enterprise value (e.g. 5x EBITDA = £4m)

2. Add surplus cash (e.g. +£0.2m)

3. Less debt (e.g. −£0.5m)

4. Add working capital surplus or less shortfall (e.g. +£0.1m)

5. Resulting equity value (e.g. £3.8m)

This approach is recognised by bodies like the ICAEW and used consistently in UK M&A to explain how the headline enterprise value translates into the payment to owners.

Why This Matters for Sellers

The enterprise value figure is impressive until you see the bridge adjustments. Debt and working capital shortfalls reduce what you actually receive. Cash in the business can increase that amount. Understanding exactly how each element will be treated prevents surprises.

Sellers should pay close attention to:

• The definition of cash and "cash like items" such as rental deposits

• How debt is defined, including whether it captures items such as hire purchase obligations, corporation tax liabilities, or early repayment charges

• What working capital definition is agreed and whether it’s realistic

Getting these elements right can increase your final payout and reduce disputes during completion.

When the Valuation Bridge Becomes Binding

The EV to Equity Value bridge is typically finalised through completion accounts or the locked box mechanism:

• In completion accounts, the bridge elements are re-measured at completion date to adjust the final price 

• In a locked box, the buyer agrees a historic balance sheet date, and the price is fixed except for any permitted leakage, with a cash "ticker" to compensate the seller for any profits generated after the balance sheet date. 

Final Thought

The value bridge in a UK business sale is not just a technical exercise. It is the roadmap from valuation theory to your bank account. Understanding it allows you to negotiate more effectively and avoid letting value slip away in hidden adjustments.