Haircut sits in the Skarn office on a Monday morning. Coffee black, cooling in a glass. An SBCI envelope arrives by courier: thick, glossy, 47 pages. Le Pitch's seal on the front. "Project Forge: Comprehensive Financial Analysis."
Haircut
Haircut
He opens to page 3: company overview. Scans. Page 7: market analysis. Skim. Page 12: financial statements. Read. Page 31: adjustments and working capital. Study. The rest slides into the bin.
Every page after that is comfort. Comfort is expensive. Comfort is why SBCI's fees are higher than anyone else's, and why half their pitchbooks end up in recycling.
Haircut
Haircut
The fundamental valuation metric in PE is not reported EBITDA. It is adjusted EBITDA. Three words. Enormous impact.
| Item | €m | Type |
|---|---|---|
| Reported EBITDA | 15.9 | Baseline |
| Abusive related-party rent (FY23) | +0.8 | One-off |
| CEO severance (FY24, replacement hired) | +1.2 | One-off |
| Factory relocation costs | +0.6 | One-off |
| Base Adjusted | 18.5 | — |
| COO will cut €1.5m admin costs (FY25+) | +1.5 | Run-rate |
| Pro Forma Adjusted EBITDA | 20.0 | Buyer's case |
The story: Reported €15.9m looks modest. But strip one-offs and add achievable cost saves, and the "real" earning power is €20m. That is the number SBCI puts on page 31. That is the number buyers focus on. That is the number the valuation is built from.
Adjusted EBITDA is the battleground. Every addback is an argument. Every argument is a negotiation. The question is not "how much did you make?" but "how much could you make?"
The sell-side always stacks Green and Amber high, and hopes buyers don't dig into Red. Good financial sponsors dig. They hire QofE (Quality of Earnings) specialists — independent accountants whose job is to mark every adjustment red, then defend Green.
Haircut
Haircut
Thirty seconds of silence.
Every M&A deal reduces to one equation. The simplest. The most misunderstood.
| €m | |
|---|---|
| Enterprise Value | 100.0 |
| + Cash on hand | 40.0 |
| − Debt | (0.0) |
| Equity Value | 140.0 |
The EV is €100m. But the shareholders (Wilhelm's family) get €140m. Why? Because the company is a cash machine. It generates cash. That cash is worth something. After paying off zero debt (there is none), the whole pie is Equity.
This is the cash-rich paradox: a business worth less than its equity value.
Trace
Le Pitch
Trace
Le Pitch
The EV is one number. The price adjusts for what's inside the balance sheet on closing day. Working capital is the sword of Damocles.
| €m | Days | |
|---|---|---|
| Actual inventory (at closing) | 53.0 | 600 DIO |
| Normal inventory for run-rate | (35.0) | (400 DIO) |
| Excess inventory | 18.0 | — |
The story: Königshof's factory is slow. Sales fell. Inventory piled up: €53m of harvesters in the yard. Normal operating inventory should be €35m. The excess €18m is cash tied up in product that will eventually sell.
At closing, Skarn negotiates a €18m price credit. They don't pay Wilhelm for the excess inventory. They will own it and sell it, eventually, into cash. That €18m was paid for, but not purchased by Skarn.
Le Pitch
Le Pitch
From 2019, all operating leases moved onto the balance sheet. One line: the lease liability. Two implications: assets swell, debt swell. Valuation looks worse than it is.
| Item | £ |
|---|---|
| Annual lease payment | 320,000 |
| Lease term | 5 years |
| Discount rate (IFRS 16) | 8% |
| Right-of-use asset | 1,300,000 |
| Lease liability (debt) | 1,300,000 |
Before IFRS 16, Subtrax's £320k annual lease was just an opex line item. Now it lives as a £1.3m liability. Result: when you calculate Net Debt, Subtrax looks more leveraged than before. EV/EBITDA looks worse. The valuation math changes without the economics changing.
Adjusting for this is standard: many adjustors eliminate the lease liability when calculating Enterprise Value.
Debt is not just debt. It is debt minus the cash you have to pay it off. The difference between gross and net is cash. And cash changes everything.
| Metric | Königshof | Subtrax |
|---|---|---|
| Bank debt | €0.0m | £0.0m |
| Gross Debt | 0.0 | 0.0 |
| Less: Cash on hand | (40.0) | (0.5) |
| Net Debt | (40.0) | (0.5) |
Königshof: negative net debt of €40m. The balance sheet is so strong that debt is negative. Zero borrowing + €40m cash = net cash position. This is the envy of private equity: a cash machine with fortress balance sheet.
Subtrax: negative net debt of £0.5m. After the processor freeze crisis, cash is thin. But still positive. The startup is not in danger, yet.
Adjusted EBITDA is a number. Quality of earnings is a judgment. The sponsor's job: verify every adjustment. Trust no one. Verify again.
Trace
Haircut
Trace
Haircut
Trace
Haircut
| Adjustment | €m | Color | Status |
|---|---|---|---|
| Reported EBITDA FY24 | 15.9 | — | Baseline |
| Related-party rent (2023) | +0.8 | 🟢 Green | Approved |
| CEO severance | +1.2 | 🟢 Green | Approved |
| Factory relocation | +0.6 | 🟢 Green | Approved |
| COO cost saves | +1.5 | 🟡 Amber | Conditional |
| Pro Forma Adjusted | 20.0 | — | Submitted |
Reality check: SBCI sent the full €20m to buyers. QofE marked the COO saves as Amber. Buyers used €18.5m as the valuation base (excluding COO). That is the number that matters when negotiating the price. Everything above is comfort.
Haircut and his associate sit in silence. Mark-up. Cross-out. Recalculate. The bridge has tied three times now, each iteration with fewer lines to defend.
Haircut
Haircut
He caps his pen. Not a Mont Blanc. He doesn't have pretensions. Just a pen that works. He stares at page 31 one more time, then pulls it from the stack and slides it across the table.
"This is all we need."
Würzburg: Wilhelm opens the offer letter from Skarn. The price: €110m EV, €40m cash left on the balance sheet, net €110m equity to his family. Thirty seconds to read. A lifetime to decide.
Shoreditch: Magda watches her bank account. The £1.3m processor hold is released. She can make payroll. She can pay suppliers. Subtrax lives another week.
Frankfurt: Le Pitch calls the IC to present. Dual-track achieved: one PE offer (Skarn €110m), one strategic bid from AGCO (€120m but with earn-outs). Let the auction begin.
City of London: Haircut closes his notebook. Page 31, marked and approved. He knows the number now: €110m. Whether the bid goes higher is leverage. Whether the adjustments hold is execution. Both are games, and both are won on this page.