So in this workout we are going to take a look at the progression of how the estimates of the equity value change during the negotiation and completion process. So in this case, we have got at the beginning the data available on signing the letter of intent or the heads of terms, and we're going to value the company based on an EBITDA multiple of six times. We've got the estimated working capital of a hundred and the expected CapEx to completion of 50. We're also seeing that the balance sheet is showing cash of 50 and debt of 100. So the enterprise value we can calculate just by calculating the multiple times the earnings. And that gives us the cash free, debt free price. And then we'll take the expected debt and the expected cash. So when we sign the letter of intent, the equity value is expected to be 300 minus the value of debt, plus the value of cash, 250. And that's what we expect at the letter of intent signing. Now, from that point onwards assuming we are using completion accounts, we go through a period of due diligence, when the lawyers, accountants and consultants and the buyers kick the tires of the company. So during due diligence the accountants will prepare an estimated balance of cash and debt and working capital and they will review the CapEx spend to date. Now these are estimates, these are not actuals because the completion accounts have not been published yet. But in this case the debt is as expected, a hundred, the cash is expected, 50. The working capital, however, is 80, when we had expected the target or long-term working capital to be 100. So this means the gas tank is slightly less full than we would expect, and the CapEx spend to date up to the completion date is only 40, when we had expected it to be 50. So to get the equity value at completion, and this is not the completion accounts, but this is at the completion of where most of the money changes hands. So what we need to do is calculate the equity value at completion. And again, this is an estimate. This is not an actual, because the completion accounts won't have been published yet and they'll take a couple of months to be produced, and that will happen after completion when most of the money changes hands. So we'll start by taking the enterprise value of 300, and then we will subtract the debt balance which is estimated to be a hundred, and we'll add the cash balance, which is estimated to be 50. Now, the accounts have estimated that the working capital at completion is going to be 80, but the permanent level of working capital is going to be, or estimated to be 100. So this means that we'll reduce the price slightly because effectively we'd normally expect the gas tank to have a hundred working capital in it, but it's only got 80. So we want a price reduction for that. Also, the CapEx, we had expected them to spend 50 today but they've actually only spent 40. So again, we want to price discount because of that. And I'm going to compare it to the appropriate CapEx in the plans, which is 50. So again, the buyer wants a break or a price reduction because of that. So this means at completion, when most of the money changes hands, the equity price or the payment from the acquirer to the vendor, it's going to be 220. Now we're not finished because sometime later when the completion accounts are published we have a true-up mechanism. Now we'll still start with the enterprise value of 300, but in this case the debt balance was actually found to be 101, slightly more. And I'm going to make that negative 'cause that would be subtracted. And then we'll add the cash balance and the cash balance in actual fact is 52 rather than 50. Now we also have the actual level of working capital and the actual level of working capital is 90. Again, it's still lower than the permanent level of working capital that the accountants estimated initially of 100. And if I go up to the top here you can see they originally said the permanent level of working capital is a hundred. It is actually, at completion, only 90. So we still expect a discount, but not by as much of the discount we had before. And then we take the CapEx adjustment of 45 minus what we had seen in their plans to spend, which was originally 50. So again, we still want a price reduction because they were spent less on CapEx than planned. So the final equity value at the completion accounts is 236.

And that's because debt was hard than expected. Cash was hard than expected. We had a slightly smaller working capital adjustment and a slightly smaller CapEx adjustment than expected at completion. So in this case, at completion, the acquirer had paid 220 but when the completion accounts are published the actual numbers mean that the buyer should have paid 236. So the true-up is a payment of the difference between the 236 and 220. And the true-up payer is going to be the buyer because the buyer, at completion, only paid 220 but on a true-up basis, they should have paid 236 so there's an additional 16 to pay.