Merger model
ProMeasures how an acquisition affects the acquirer's earnings per share: accretion or dilution year by year, driven by the premium, the mix of shares, cash and debt, and synergies.
- 6 sheets
- Two 5 × 5 accretion grids
- 4 checks and 3 alerts
Method
The offer price is the target's share price plus the premium. Uses, the equity purchase price plus fees, are funded by new shares, the acquirer's cash and new debt, which funds the balance, so sources equal uses by construction.
New shares are issued at the acquirer's share price. Part of the excess of the equity purchase price over the target's book equity is allocated to intangibles, amortised on a straight-line basis; the rest is goodwill and is not amortised.
Each year, pro forma net income adds up the acquirer's and the target's net income, then the after-tax adjustments: phased-in synergies, less integration costs, interest on the new debt, interest forgone on cash and intangibles amortisation.
Pro forma EPS divides that net income by the share count after issuance. It is compared with the acquirer's standalone EPS: the gap is the accretion or dilution, and breakeven synergies are those that would leave EPS unchanged.
Limitations: the debt balance stays constant over the period, a single tax rate applies to every adjustment, and the sensitivity grids are computed on year 1.
What's in the file
- 01CoverCompany, date, currency, language, checks status, contents, colour conventions and disclaimer.
- 02InputsAcquirer, target, transaction, financing, synergies year by year and purchase price allocation.
- 03TransactionOffer price, sources and uses, shares issued, ownership, excess purchase price, P/E.
- 04Pro formaNet income, pre-tax and after-tax adjustments, standalone and pro forma EPS, accretion and breakeven.
- 05OutputsKey figures and two year 1 accretion grids: premium × share consideration, premium × synergies.
- 06ChecksFour integrity checks counted as errors, and three alerts kept out of the total.