CAPEX intensive industries: should seller be paid net of long term debt?

July 23, 2025

by a searcher from Dartmouth College - Tuck School of Business at Dartmouth in Lima, Peru

Hi everyone, I need M&A folks help here for a clarification. We have come across at companies that are CAPEX intensive (equipment, not real estate), hence have long term debt (banks most of the times) that was used to fund that CAPEX. After we have decided on a specific multiple and a MVIC, should we have to subtract that long term debt from the MVIC (so the seller gets paid net of long term debt) or should we retain that amount and paid the long term debt by ourselves? Thanks!

Reply by a lender
from University of Missouri in Denver, CO, USA

Yeah as Will said typically those debts will be paid at close. It is important if it is CAPEX heavy to discount their earnings by an estimate of what you think you may need to spend yearly

Reply by an intermediary
from The University of Chicago in Chicago, IL, USA

Whether the business is CapX intensive or not, MVIC/EV assumes that Seller is responsible for debt and debt-like liabilities. Debt is almost always paid off at Closing. Debt-like liabilities are either paid off at Closing or buyer assumes them and reduces cash paid to Seller. Seller is not paid net of debt EVEN in a stock purchase. In small deals, existing debt from bank X is paid off by the buyer's bank Y at closing, X releases lien on assets and removed seller's PG. This allows Y to put first lien on assets. MVIC is used in appraiser community where the primary objective is to determine equity value of the business. They wrongly imply that in a stock purchase transaction occurs at such equity value.

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