Equity

Definition

Ownership in the business, and the layer of money that sits under the debt.

Why It Matters

Being underneath is the whole of it: the lender is paid first out of every dollar the business earns, and what is left belongs to whoever holds this. That makes it the riskiest money in an acquisition and the only money that keeps the gain. A searcher's comes from three places that behave differently, the cash the buyer puts in, the cash investors put in, and the shares earned by doing the work, and only the first has a floor set by anybody else. Ask who holds what and in what order they are paid before the price is agreed, because the split is far harder to move afterwards.

In numbers: Buy at $4M with $3.2M of debt and the equity is $800,000, which is 20% of the purchase and the whole of what is left once the lender is paid.