How is non-operating/excess cash ususally handled in a transaction; i know it comes down to negotiations and working capital needs, etc. But can someone help clarify my thinking here…
Say you value a company and determine it’s operating value is $95mm and the company has $5mm in excess cash for a total COmpany value of $100mm. At the negotiating table you (the buyer) could be $100mm to the seller and keep the $5mm cash that’s on the balance sheet OR cut a check for $95mm and let the seller keep the $5mm cash on his way out. Is that generally how it goes, one or the other ?
I’m missing something though. In the first scenario you (the buyer) effectively pay $95mm bc you get to keep the cash (while the seller has $100mm in his pocket). In the second scenario, you effectively pay $95mm and the buyer has $100mm in his pocket (bc he gets to take the $5mm cash). I see how those line up but isn’t there a disconnect there, how are you paying $95 million while the buyer is walking away with $100mm ??? How’s he getting more than what you pay…ahhh, what am i overlooking.
Please set me straight. Thanks, all.