M&A & Merger Modeling
Build a merger model and tell whether a deal grows or dilutes the buyer's EPS
6
modules
16
lessons
~2h
to complete
The deal-team core skill: price an acquisition, structure cash vs. stock, run the purchase accounting, and land the accretion/(dilution) verdict on EPS - then prove it in the simulator.
Your progress
16 lessons
13
What a Merger Model Is
The whole model exists to answer one question: does the buyer's EPS go up or down?
- ✓6m1.1Accretion vs. DilutionA merger model measures the impact of an acquisition on the buyer's earnings per share. Up is accretion; down is dilution.
- ✓6m1.2Why Companies AcquireMost deals are justified by synergies - extra revenue or cost savings the two companies can capture only by combining.
- ✓6m1.3Sizing the Two CompaniesBefore any deal math, profile each company: share price, shares, equity value, EPS, and the P/E multiple.
- ?Module checkpointquiz →
23
Price & Consideration
How much the buyer offers, and whether it pays in cash, stock, or a mix.
- ✓6m2.1Offer Price & Control PremiumTo win control, the buyer offers a premium over the target's current share price. Multiply by shares to get the offer value.
- ✓7m2.2Cash vs. StockCash is usually funded with new debt; stock issues new buyer shares. The mix drives both interest expense and dilution.
- ✓6m2.3Sources & UsesEvery dollar used to buy the target and pay fees must be sourced from debt, new equity, or cash on hand. The two sides must balance.
- ?Module checkpointquiz →
33
Purchase Price Accounting
Where goodwill comes from, and why writing up assets creates extra D&A and a deferred tax liability.
- ✓6m3.1The Purchase PremiumOn close, the target's assets are re-valued to fair value. The amount paid above net tangible book value is the purchase premium that must be allocated.
- ✓8m3.2Write-Ups, D&A & the DTLPart of the premium writes up PP&E and intangibles. That creates new depreciation/amortization - and a deferred tax liability, because the write-up isn't deductible for taxes.
- ✓6m3.3GoodwillGoodwill is the premium that isn't tied to identifiable assets. It's the plug that makes the combined balance sheet balance.
- ?Module checkpointquiz →
42
The Accretion / Dilution Calculation
Combine the two income statements, layer in the deal effects, and divide by the new share count.
- ✓8m4.1From Standalone to Pro FormaAdd the two companies' pre-tax earnings, then adjust for the real effects of the deal: interest, fees, synergies, and incremental D&A.
- ✓8m4.2Pro Forma EPS & the VerdictTax the adjusted earnings, divide by the new share count, and compare to the buyer's standalone EPS.
- ?Module checkpointquiz →
53
What Drives Accretion / Dilution
Three intuitions that let you call a deal before you build the full model.
- ✓6m5.1The P/E Rule of ThumbIn an all-stock deal, a higher-P/E buyer acquiring a lower-P/E target is accretive. The reverse is dilutive.
- ✓7m5.2Which Currency Is CheaperCash (debt) and stock each have a cost. The cheaper financing is the more accretive one - compare the after-tax cost of debt to the buyer's earnings yield.
- ✓7m5.3Synergies & the BreakevenSynergies add earnings that can flip a dilutive deal accretive. The breakeven is the synergy level that leaves EPS unchanged.
- ?Module checkpointquiz →
62
Putting the Deal Together
Combine the balance sheets, then say what the numbers actually mean.
- ✓7m6.1The Pro Forma Balance SheetAdd the two balance sheets, then post the deal adjustments: new cash, debt, goodwill, write-ups, and the target's wiped-out equity.
- ✓6m6.2Accretion Isn't ValueThe model tells you the EPS optics. Whether the deal is smart depends on price, synergies, and integration - not the sign of the EPS change.
- ?Module checkpointquiz →