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Mergers & Acquisitions - Coggle Diagram
Mergers & Acquisitions
Exchange ratio
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You need to test the before and after effects of a takeover on both the acquiring company and target company
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Synergy
- Min ER= MV(T) / MV(A) + (1)
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- Determine the value of synergy per Acquirer shares = Value of synergy/ no. of acquirer shares
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The above formula represents the value of acquiring firm + all the synergy. Any change in P/E is taken into account
If synergy is not allocated to either party, then exchange ratio calculation will be a normal exchange ratio.
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- Determine the value of synergy per Target shares = Value of synergy/ no. of target shares
- Max ER = MV(T) + (1) / MV(A)
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The above formula represents the value of target firm + all the synergy. Any change in P/E is taken into account
Important considerations
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If debt is issued, remember PMT should be after tax (*0.72)
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Reverse takeovers, formula becomes reverse
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IF P/E ratio is greater, there is more growth expected in relation to a lower P/E
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Remember for growth, use P/E ratio as an assessment
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