Final answer:
In an M&A transaction, the equity value of a private target company is calculated by estimating its enterprise value and subtracting the debt value from it. The resulting value represents the equity portion owned by the shareholders.
Step-by-step explanation:
In an M&A (mergers and acquisitions) transaction, the equity value of a private target company is typically calculated by considering several factors. One common approach is to estimate the company's enterprise value first, which includes both debt and equity. Then, subtracting the debt value from the enterprise value gives us the equity value.
For example, let's say the enterprise value of the target company is $10 million and it has a debt value of $2 million. Subtracting the debt value from the enterprise value, we get an equity value of $8 million. This equity value represents the portion of the company's value that belongs to its shareholders.