Standard book value (equity on the balance sheet) is rarely a reliable indicator of what a business is worth to a buyer. Assets are carried at historical cost minus depreciation; real estate may be decades old; machinery may be fully depreciated but still productive; intangibles like brand, customer lists, and software are often unrecorded. Restated NAV (or substantielle Wert in Swiss practice) marks each asset to its current replacement or market value.
For most service businesses — consultancies, tech companies, asset-light B2B services — NAV is a floor rather than a ceiling. Buyers pay for earnings streams and future cash flows, not the book value of desks and laptops. A €5m EBITDA business with €2m of net assets would never sell for €2m; it sells for a multiple of EBITDA. NAV only becomes the primary reference when earnings are minimal or the asset base is the primary attraction (real estate, infrastructure, natural resources).
In French and Swiss SME transactions, NAV is most relevant for: capital-intensive manufacturing where equipment drives value, real estate holding companies, asset stripping scenarios, and the denominator of the practitioner's method. In any other context, EBITDA multiples will dominate the price discussion.
NAV vs earnings-based value
A food manufacturing company has restated net assets of €6m (equipment €4m, inventory €1.5m, net WC €0.5m). EBITDA: €1.5m at 6.5× sector multiple = €9.75m EV. The goodwill embedded in the purchase price (difference between earnings value and asset value) is €3.75m — representing the brand, customer relationships, and operational know-how not on the balance sheet.
Frequently asked questions
When does NAV dominate over earnings multiples in SME transactions?
When EBITDA is negligible or negative (distressed situations, asset sales), when the asset base is uniquely valuable (prime real estate, specialized equipment, mineral rights), or when the business is being wound down. In these cases, buyers price the assets, not the going concern.
What adjustments are made to reach restated NAV?
Common restatements: mark real estate to current market appraisal (often large for older businesses), write up/down equipment to replacement cost, adjust inventory to net realizable value, eliminate goodwill already on the balance sheet (being replaced by the new purchase price), recognize off-balance-sheet liabilities (leases, pensions, environmental).
How does a buyer use NAV in an acquisition?
As a downside anchor: even if the business underperforms, what are the assets worth? Sophisticated buyers calculate the 'asset coverage ratio': NAV as a percentage of purchase price. In leveraged transactions, lenders also care about asset coverage because it determines how much they could recover in a downside scenario.