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M&A Exercise – Assessment Centre Case Study – 20 Minutes – SOLUTIONS

Please build an Excel model to answer the questions below, based on Company A’s acquisition
of Company B and the combined financial results over a 3-year period.

The main transaction assumptions are shown directly below. You can find the projected 3-year
financial information for Company A and Company B below the case questions.

Transaction Assumptions:

• Target’s Existing Debt and Cash: Assume that these STAY IN PLACE and DO NOT
CHANGE in the deal. In other words, the Purchase Price should be linked to Equity
Value, not Enterprise Value.

• Expense Synergies: 10% of the Target’s OpEx + COGS (excluding D&A); Phased in Year 1:
25%, Year 2: 50%, and Year 3: 100%.

• Acquisition Debt – Interest Rate: Benchmark Interest Rate + 500 bps; Benchmark Rate
increases from 2.0% to 2.5% to 3.0%.

• Acquisition Debt – Principal Repayment: 10% per year until maturity in Year 5.

Case Study Questions:

1. Company A acquires Company B in an all-share transaction. How accretive or dilutive

will the transaction be in Year 1, Year 2, and Year 3 at a:
a. Nil premium.
b. 20% premium to Company B’s current share price.
Calculate the pro-forma credit stats for both scenarios as well.

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2. Company A acquires Company B in an all-cash transaction. The cash will be raised

through a debt issuance. How accretive or dilutive will the transaction be in Year 1, Year
2, and Year 3 at a:
a. 20% premium to Company B’s current share price.
b. 40% premium to Company B’s current share price.
Calculate the pro-forma credit stats for both scenarios as well.

3. Company A acquires Company B for a mix of shares and cash. The cash will be raised
through a debt issuance. How accretive or dilutive will the transaction be in Year 1, Year
2, and Year 3 in the following scenarios:
a. 20% premium; 30% cash / 70% shares.
b. 40% premium; 80% cash / 20% shares.
Calculate the pro-forma credit stats for both scenarios as well.

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Key Financials – Company A:

Key Financials – Company B:

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