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Purchase Price

Definition - What does Purchase Price mean?

The purchase price represents the total enterprise value (EV) of a company including the value of its equity and debt. When a buyer conducts a valuation, the total amount he/she is willing to pay represents the purchase price, and this amount often includes a provision for non-cash working capital (NCWC) to be left in the company to sustain future revenue.

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Divestopedia explains Purchase Price

The purchase price usually makes headlines in a transaction, but it is important to peel back the layers since not all headlines are created equal. The purchase price is the gross value of the business, which may be inflated if the buyer requires working capital and also may include debt that needs to be deducted to arrive to the equity value of the company.

In addition, a purchase price may appear high as a multiple of EBITDA, but the sources of funds required to make up this price may include non-cash considerations such as earnouts, seller notes, or shares of the buyers. The higher the amount of non-cash consideration there is in a deal, the "riskier" the structure is for the seller. That is, a purchase price of $15 million where only 50% is being received in cash may not be as good as a purchase price of $10 million where the entire amount is being received in cash.

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