Glossary
Cash-free, debt-free
A pricing basis under which the buyer offers an enterprise value for the business on the assumption that it has neither cash nor debt, with the actual cash and debt adjusted for at completion.
In plain English
When a buyer says it will pay a certain amount "on a cash-free, debt-free basis", it means the headline figure is an enterprise value. The seller keeps, or is paid for, the cash in the business, and the debt is deducted from the price. What counts as cash and debt is then defined in detail in the sale agreement.
The phrase is shorthand for the bridge between enterprise value and equity value. It is a normal way of expressing an offer, and it is also where much of the negotiation happens.
Why it matters
Two offers on a cash-free, debt-free basis can produce very different amounts for shareholders depending on how debt-like items and working capital are treated. The headline is only the start.
What to watch for
- Agree early what will be treated as debt, including accrued bonuses, deferred income, tax liabilities and leases.
- Agree how surplus cash and the working capital target will be handled.
- The mechanism for settling the final figure will be a locked box or completion accounts.
Transaction language and legal treatment depend on the agreement and the jurisdiction. Written by Motion Advisory Partners as general guidance, not legal advice.