What is Enterprise Value (EV)?
Enterprise value is the total value of a company’s operating business, regardless of how it is financed. It equals the market value of equity plus net debt and minority interest. EV is the basis for most acquisition pricing because it represents the cost to take over the whole business.
How It Works
- Formula: EV = Market cap + Total debt − Cash and equivalents + Minority interest + Preferred stock
- Used in multiples like EV/EBITDA and EV/Revenue, which are capital-structure neutral
- Better than market cap for comparing companies with different debt levels
- Acquirer effectively buys the equity and assumes the debt — that’s the EV they pay
- Cash is subtracted because the acquirer would receive it post-deal
Saudi Context
Saudi M&A activity — driven by Vision 2030 consolidation, PIF-led deals, and family-business sales — relies heavily on EV-based valuation. CMA disclosures on listed acquisitions typically report deal value on an EV basis.
Example
A Saudi listed retailer has a market cap of SAR 4B, debt of SAR 1.2B, and cash of SAR 200M. EV = 4 + 1.2 − 0.2 = SAR 5B. If a competitor offers SAR 5B in cash plus assumption of debt, that is the EV-based offer.