Why do we add back minority interest to get Enterprise Value?

EV is the net price that an acquirer is willing to pay to buy the entire firm, so why do we add minority interest?

OK, got it - since books are consolidated, EBITDA will also include sub’s values.

Does someone have the answer to this? and why does minority interest goes to Equity and not to liabilities???

In the accounting world, minority interest is sometimes displayed neither as equity or debt but as a line item in between debt and equity. Also, US GAAP allows for minority interest to be shown as a non-current liability or equity.

Having said that, because the company has determined that it has control, it consolidates 100% of the assets (including that of its sub that the company may own 51% of) and 100% of the liability, in order for the balance sheet to balance, you need to show the minority interest and it is commonly shown in equity because it is the equity interest associate with 100% of the assets & liability that the company consolidated on the balance sheet. If I was a CFO of a corporation, I would probably elect to show the minority interest in the equity section.

It’s deductible item of equity by major shareholder point of view. I have never seen NCI among liabilities. Minor shareholders are shareholders per se and thus belong to equity. Also, since minority share portion is a part of entire company value, it must be added to EV calculation.

In consolidated financial statements, when a company consolidates some subsidiaries which are not fully owned by it, it shows a split of its equity to owners of the parent and to the minority owners of of the subsidiaries, called non-controlling interests. Enterprise value being the price to be paid for the company, needs to account for both MV of debt and equity, including to non-controlling owners.