M&A Deals and Merger Models
"Fuzzy" motives for M&A? - ANS-IP/Patent/Key Tech
Defensive Acquisition
Acqui-Hire (hiring exact teams)
Intangibles
Office politicis, ego, pleasure
7 steps to create a merger version? - ANS-1. Project the Financial Statements of the Buyer and
Seller
2. Estimate the Purchase Price and Form of Payment
three. Create a Sources & Uses Schedule and Purchase Price Allocation Schedule
4. Combine the Balance Sheets of the Buyer and Seller
five. Combine the Income Statements of the Buyer and Seller
6. Calculate Cash Flows, Debt Repayment, and Key Metrics and Ratios
7. Calculate EPS Accretion/Dilution and Create Sensitivity Tables
Acquirer (EqV of $500M and TEV of $600M) has Net Income of $50M and EBITDA of $100M.
Target (Purchase EqV of $100M and Purchase TEV of $150M) has Net Income of $10M and
EBITDA of $15M.
What are the Combined P/E and EV/EBITDA multiples in a one hundred% Stock deal? Assume
same tax fees for Acquirer and Target.
How could Combined Multiples exchange in a a hundred% Cash or Debt deal? -
ANS-Combined EqV = $600M
Combined EV = $750M
Combined EBITDA = $115M
Combined Net Income = $60M
Combined P/E a couple of = $six hundred/$60 = 10x
Combined EV/EBITDA = $750/$a hundred and fifteen = ~6.5x
Part 2
P/E Multiple might alternate due to the fact Combined EqV could be at $500M. Combined Net
Income could additionally trade because of Foregone Interest on Cash and Interest on Debt.
, P/E tends to be decrease in coins due to the fact Combined EV declines by more percent than
Combined Net Income.
Advantages/Disadvantages Debt - ANS-Advant.:Cheaper than inventory and supplier receives
cash immediately
Disadvant.: Increased debt for agency, financing can be luxurious and time consuming, Seller
still gets taxed straight away, no upside of purchaser inventory for supplier
Advantages/Disadvantages of Cash - ANS-Advantages: commonly cheapest approach (hobby
earned on coins is usually low). Seller receives cash at once so do not have to address
financing.
Disadvantages: Seller gets taxed right away and vendor can not take gain of ability upside of
customer stock
Advantages/Disadvantages Stock - ANS-Advant.: Can be inexpensive if consumer has
excessive inventory rate and P/E a couple of, may be quicker then debt financing, seller gets to
participate in capacity upside of buyer's stock price, vendor isn't taxed until stock is bought
Disadvant.: More chance for supplier on the grounds that consumer percentage rate should
alternate, there can be lock-up durations for the stock and the vendor would possibly should
maintain it for a long term earlier than promoting, fixed shares vs. Constant cost should make a
big effect on supplier if the buyer's share fee modifications lots.
An Acquirer has an Equity Value of $1B, Cash of $50M, EBITDA of $100M, Net Income of
$50M, and a Debt/EBITDA ration of 2x. Peer organizations have an average Debt/EBITDA ratio
of 4x.
It wants to accumulate another corporation with Purchase Equity Value of $500M. The Seller
has Net Income of $30M, EBITDA of $50M, and no Debt.
What is the first-class manner to fund the deal? - ANS-Company not going to apply Cash due to
the fact it's far near minimum stability.
Acquirer P/E a couple of is 20x so Cost of Stock is 1/20 = 5%
Low however Debt might be nonetheless less expensive.
Company can move from 2x to 4x Debt/EBITDA
Combined Company has $150M in EBITDA, and 4*150M = $6M
Acquirer has $200M in Debt earlier than deal so it may get $400M in Debt and would fund the
relaxation in Stock and anything Cash may be spent.
An Acquirer has an Equity Value of $500M, Cash of $100M, EBITDA of $50M, Net Income of
$25M, and a Debt/EBITDA ratio of 3x. Similar companies have Debt/EBITDA ratios of 5x.
"Fuzzy" motives for M&A? - ANS-IP/Patent/Key Tech
Defensive Acquisition
Acqui-Hire (hiring exact teams)
Intangibles
Office politicis, ego, pleasure
7 steps to create a merger version? - ANS-1. Project the Financial Statements of the Buyer and
Seller
2. Estimate the Purchase Price and Form of Payment
three. Create a Sources & Uses Schedule and Purchase Price Allocation Schedule
4. Combine the Balance Sheets of the Buyer and Seller
five. Combine the Income Statements of the Buyer and Seller
6. Calculate Cash Flows, Debt Repayment, and Key Metrics and Ratios
7. Calculate EPS Accretion/Dilution and Create Sensitivity Tables
Acquirer (EqV of $500M and TEV of $600M) has Net Income of $50M and EBITDA of $100M.
Target (Purchase EqV of $100M and Purchase TEV of $150M) has Net Income of $10M and
EBITDA of $15M.
What are the Combined P/E and EV/EBITDA multiples in a one hundred% Stock deal? Assume
same tax fees for Acquirer and Target.
How could Combined Multiples exchange in a a hundred% Cash or Debt deal? -
ANS-Combined EqV = $600M
Combined EV = $750M
Combined EBITDA = $115M
Combined Net Income = $60M
Combined P/E a couple of = $six hundred/$60 = 10x
Combined EV/EBITDA = $750/$a hundred and fifteen = ~6.5x
Part 2
P/E Multiple might alternate due to the fact Combined EqV could be at $500M. Combined Net
Income could additionally trade because of Foregone Interest on Cash and Interest on Debt.
, P/E tends to be decrease in coins due to the fact Combined EV declines by more percent than
Combined Net Income.
Advantages/Disadvantages Debt - ANS-Advant.:Cheaper than inventory and supplier receives
cash immediately
Disadvant.: Increased debt for agency, financing can be luxurious and time consuming, Seller
still gets taxed straight away, no upside of purchaser inventory for supplier
Advantages/Disadvantages of Cash - ANS-Advantages: commonly cheapest approach (hobby
earned on coins is usually low). Seller receives cash at once so do not have to address
financing.
Disadvantages: Seller gets taxed right away and vendor can not take gain of ability upside of
customer stock
Advantages/Disadvantages Stock - ANS-Advant.: Can be inexpensive if consumer has
excessive inventory rate and P/E a couple of, may be quicker then debt financing, seller gets to
participate in capacity upside of buyer's stock price, vendor isn't taxed until stock is bought
Disadvant.: More chance for supplier on the grounds that consumer percentage rate should
alternate, there can be lock-up durations for the stock and the vendor would possibly should
maintain it for a long term earlier than promoting, fixed shares vs. Constant cost should make a
big effect on supplier if the buyer's share fee modifications lots.
An Acquirer has an Equity Value of $1B, Cash of $50M, EBITDA of $100M, Net Income of
$50M, and a Debt/EBITDA ration of 2x. Peer organizations have an average Debt/EBITDA ratio
of 4x.
It wants to accumulate another corporation with Purchase Equity Value of $500M. The Seller
has Net Income of $30M, EBITDA of $50M, and no Debt.
What is the first-class manner to fund the deal? - ANS-Company not going to apply Cash due to
the fact it's far near minimum stability.
Acquirer P/E a couple of is 20x so Cost of Stock is 1/20 = 5%
Low however Debt might be nonetheless less expensive.
Company can move from 2x to 4x Debt/EBITDA
Combined Company has $150M in EBITDA, and 4*150M = $6M
Acquirer has $200M in Debt earlier than deal so it may get $400M in Debt and would fund the
relaxation in Stock and anything Cash may be spent.
An Acquirer has an Equity Value of $500M, Cash of $100M, EBITDA of $50M, Net Income of
$25M, and a Debt/EBITDA ratio of 3x. Similar companies have Debt/EBITDA ratios of 5x.
