Transaction value in an acquisition is determined by what method?

In an acquisition, the transaction value reflects the total cost incurred to acquire a company, and one common way to determine this value is by adding net debt to the purchase price. This approach accurately represents the financial obligations that the acquiring company will take on in addition to the direct purchase price of the company's equity.

Calculating the net debt involves assessing both the company's debt and its cash reserves. By including net debt in the transaction value, potential buyers can gauge the full financial commitment involved in the acquisition. It ensures that all financial liabilities are accounted for, thus providing a clearer picture of what the acquisition truly costs. This method is particularly essential for assessing the impact of the transaction on the acquirer's balance sheet and financial health.

In contrast, subtracting liabilities from assets would yield the net asset value of the company but doesn’t accurately reflect the total acquisition cost. Similar, calculating future earnings and discounting them is more related to valuation methods rather than establishing the transaction value directly. Lastly, determining market capitalization and multiplying by a factor might provide an estimate of a company's worth but does not give a clear breakdown of the components of the acquisition price, especially concerning debt.