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M&A Steps (2-M&A Steps (in order from top to bottom) (Acquirer…
M&A Steps
2-M&A Steps (in order from top to bottom)
Acquirer & target models
Deal assumptions
Closing Balance Sheet
Pro Forma Model
Accretion & Dilution analysis
Sensitivity Analysis
3-Acquirer & Target Model
2 Fin Statement (BS & IS) have to have the same lines and both companies need the same structure
Need to combine line items to have common ones for both company sheets
Counting for the Stub Period
The M&A transaction is going to take place during a year, the first half of that year will be based on historical figures, and after that, the post merger figures have to be calculated based on a forecast, so we have to set up that Stub year
We set up the Stub for the Acquirer & Target Models
Also set up the Stub Income Statement : either do Quarterly figures or multiply revenue & cost figures by the % of stub year (0.75 for ex)
Set up Stub Balance Sheet: Same figures for second half from of stub period as the ending historical period
Assets & Liabilities can be simply applied for 1st half of stub since they revolve on days not on previous period. For Equity we have to link to the historical period to complete Stub year 1st part
Stub Cash Flow statement:
Everything can be filled right for the entire CF statement except opening & closing cash balances. Opening 2017 stub = closing 2016 stub. Opening 2nd half 2017 stub = closing 1st half 2017 stub
Stub supporting schedules
Working capital - fill everything right since it references the balance sheet, then we should reference the cells for the change in WC
PPE is filled right, witjh the same concept for opening & closing balances. However, CAPEX & Depreciation are accounted as a % of the passing year, based on the fraction of the year for each Stub period
Debt & Interest schedule: we use the stub period fraction for interest repayment & interest expense, and we carefully link opening & closing balance
Stub balance sheet should balance after that
4-Deal Assumptions
Transaction inputs
Financing & restruring costs
Debt for Target & Acquirer
Number of shares available etc
Share assumptions
Standard list of assumptions
Synergies
Financing
Transactions
Scenario Setting up
Set up different scenarios for the M&A Assumptions
Share price calculation
Target share price + takeover premium in function of scenario
Purchase price = offer price (takeover premium x target price now) x shares outstanding
Entreprise Value calculation
Purshace price + short debt + long debt - cash (debt and cash from 1st part stub period or transaction date)
Uses of Cash
Cash consideration
Purchace price * cash consideration assumptions
Stock consideration
Purchase price - cash consideration
Target debt replace
if thats the scenario, we get it from the assumptions for EV
Acquirer debt replace
We get the number from the acquirer stub period balance
Debt Financing fees
Debt issuance fee assumption * all new debt issued under scenarios
Equity financing fees
Equity fee assumption * stock consideration (above(
Other costs
Legal fees etc form assumptions
Sources of cash
Cash = Total Uses of Cash - (debt + stock consideration + any other source of cash) which is the amount of cash we should have to complete the deal
Stock Issued = stock consideration
Debt = sum of debt issued by or for deal (from scenarios)
Should match the total uses of cash in total
Shares issued & shares outstanding
Calculate share issuance price after discount assumptions
Calculate number of shares to be issued with that price
1 more item...
The pro forma shares outstanding = acquirer shares outstanding + shares issued
Goodwill & purschace price allocation
7 more items...
Total uses
Compare both Target & Acquirer Model to check for the slightest difference
1-M&A Process
Strategic vs Financial Buyers
Strategic
Merger for more synergies
Merger for revenue enhancement
Merger for more market share
Hard synergies (Cost saving & economies of scale)
Soft synergies (Revenue increase ,...)
Financial
Use leverage for max equity return
Don't need the operating benefit
Generally LBO
Conceptual representation
We need to watch out for the company value on a standalone basis + synergies - transaction costs and consider the price to pay to reach maximum benefit added (so a minimal target acquisition price)