Mergers & Acquisition Modeling

1) Analyze transations whether it is accretive or dilutive to shareholders

2) Strategic or synergy rational; benefit to buyer and seller
3) Value creation or destroyer

Objectives:

 Structuring M&A model in the most efficient way

 Setup all the assumptions and drivers required
 Calculate necessary adjusting entries required to create a post-transaction balance sheet
 Integrate acquirer and the target into a pro form model
 Calculate the accretion or dilution of key per share metrics post transaction
 Perform sensitivity analysis

M&A Process

1) Acquisition Strategy => Developing strategy; reason to do M&A

2) Acquisition Criteria
3) Searching for Target => May use pitchbook data, as well as capital IQ or Bloomberg, also may
engage investment bankers to help
4) Early discussion => discussion with company that fits critera to get more confidential
information; Confidential Information Memoreandung (CIM) -  a document used in mergers
and acquisitions to convey important information about a business that’s for sale including
its operations, financial statements, management team, and other data to a prospective
buyer.
5) Valuing and Evaluating => build financial model to evaluate impact of trhe transaction
6) Negotiating
7) Due Dilligence
8) Purchase & Sales Contract => enable the transaction to close
9) Financing
10) Integration

These entire process may take years for business

Strategic VS Financial buyers

 Horizontal or vertical expansions

 Invloves identifying and delivering operating synergies
Strategic buyers
 Hard synergis – Cost saving
 Soft synergies – Revenue enhancement

 Private Equity
Financial buyers  Leverage for maximum equity returns

Value Creation

Standalone Enterprise Value + Synergies Value – Transaction Cost – Consideration Paid

M&A Financaial Modeling Steps
 Acquirer & Target Models Deal Assumptions Closing Balance Sheet

1) Create financial statement 5) Inputs that drives transaction; 6) Add together the balance
mapping, 3 financial takeover premium, purchase sheet of two company plus
statement model and DCF price, form of consideration, any adjustment needed
model for each acquirer and financing, Purchase Price
target company Allocation, etc

Pro Forma Model Accretion / Dilution Sensitivity Analysis

2) Combine both business 4) Pro forma per share metrics 3) Impact in the instrinsic
plus any synergies or value per share of
adjustment that is combined company relative
necessery – 3 statements to the acquirer before the
& DCF transaction

Deal Assumptions

 Transaction inputs : basic information; company’s name, date of transaction, share prices,
number of shares outstanding
 Scenarios: various synergies and financing alternatives
 Purchase price: calculate the price considering the takeover premium and traget price
 Sources and uses of cash: ensure the transaction is properly funded and all cash is accounted
for in terms of what being raised and what being spent
 Purchase Price Allocation (PPA): calculating goodwil after allocated the purchase price

Onve all of these sections completed, we can build up closing transaction balance sheet to drive the
forecast and pro forma model

Pro Forma Model

Acquirer’s model + Target’s model + Adjustment