You are given a company with $50 million in restricted cash that serves as collateral for a revolving credit facility and is not available for general corporate purposes. Where would you place this restricted cash in the EV bridge, and why?

Restricted cash is not a freely spendable cash balance that reduces the acquisition cost of the business. In an EV bridge, only excess cash that can be used to repay debt or return to shareholders is subtracted. Restricted cash, because it is earmarked for a specific obligation, is not “excess.” I would either exclude it from cash (i.e., not subtract it from EV) or treat it as a debt-like item (add it implicitly by not subtracting it). More practically, I leave it in the net debt calculation as a zero value for EV purposes: cash and equivalents line only includes unrestricted cash. This means the restricted cash is effectively treated as a non-operating asset that cannot be stripped out, increasing EV relative to a scenario where it were free.

If the restricted cash backs a specific debt facility, I might net it against that debt if the facility is non-recourse and the cash is always used to repay it, but in most cases I simply exclude it from the cash deduction.

Follow-up pressure:

• How would you treat restricted cash that is permanently restricted for pension obligations?
• Does the treatment of restricted cash change in a DCF vs a multiples context?
• If the restricted cash earns interest income that flows through EBITDA, how might that affect your answer?