Cash-Free Debt-Free Basis

Definition

A common M&A pricing convention in which the enterprise value is expressed before accounting for the target's cash balances and debt obligations, which are then adjusted at completion to calculate the equity value payable to the seller. Under this convention, equity value equals enterprise value plus cash and cash equivalents less financial debt (including debt-like items such as pension deficits, deferred consideration, and unpaid tax). The cash-free debt-free mechanism ensures the buyer acquires an unencumbered business at the agreed enterprise value.