Net Debt and Debt-Like Items
Also known as: Net Debt, Debt-Like Items, Cash-Free Debt-Free
Net debt is a company’s total debt plus debt-like items minus its cash, and it is deducted from enterprise value to determine the price actually paid to equity holders.
Net debt is a company’s interest-bearing debt plus other debt-like items, minus cash and cash equivalents. It matters in a deal because most acquisitions are structured on a cash-free, debt-free basis. The buyer agrees an enterprise value, then deducts net debt to reach the equity price the seller actually receives.
What counts as debt-like
Beyond bank loans, buyers commonly treat the following as debt-like: unpaid taxes, deferred or unearned revenue, accrued bonuses, capital leases, earnouts, and unfunded pension or accrued time-off liabilities. Each item the buyer can classify as debt-like reduces the price paid to the seller, so this list is heavily negotiated.
Why it surprises sellers
Many first-time sellers focus only on the headline enterprise value and are caught off guard when net debt and debt-like adjustments reduce their proceeds at closing. A thorough financial due diligence process identifies these items early, so there are no surprises in the final purchase price.