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Learn/M&A & Merger Modeling/Formula sheet

M&A & Merger Modeling Formula Sheet

Every formula in the track on one page. Print it and keep it next to you.

Pricing the deal

Offer price
Current Price×(1+Premium)\text{Current Price} \times (1 + \text{Premium})
Offer value
Offer Price×Target Shares\text{Offer Price} \times \text{Target Shares}

The equity purchase price.

New shares issued
Stock ConsiderationBuyer Share Price\dfrac{\text{Stock Consideration}}{\text{Buyer Share Price}}
Annual interest
New Debt×Rate\text{New Debt} \times \text{Rate}
Cash on hand (plug)
Uses−(New Debt+New Equity)\text{Uses} - (\text{New Debt} + \text{New Equity})

Purchase accounting

Purchase premium
Offer Value−Net Tangible Book Value\text{Offer Value} - \text{Net Tangible Book Value}
Incremental D&A
Asset Write-UpUseful Life\dfrac{\text{Asset Write-Up}}{\text{Useful Life}}
Deferred tax liability
Tax Rate×Write-Ups\text{Tax Rate} \times \text{Write-Ups}
Goodwill
Premium−Write-Ups+DTL\text{Premium} - \text{Write-Ups} + \text{DTL}

Accretion / dilution

Net income
EPS×Shares\text{EPS} \times \text{Shares}
Pre-tax income (EBT)
Net Income1−Tax Rate\dfrac{\text{Net Income}}{1 - \text{Tax Rate}}
Pro forma EPS
Pro Forma Net IncomeBuyer Shares+New Shares\dfrac{\text{Pro Forma Net Income}}{\text{Buyer Shares} + \text{New Shares}}
Accretion / (dilution)
Pro Forma EPSStandalone EPS−1\dfrac{\text{Pro Forma EPS}}{\text{Standalone EPS}} - 1

Rules of thumb

Deal P/E
Offer ValueTarget Net Income\dfrac{\text{Offer Value}}{\text{Target Net Income}}

All-stock: accretive if buyer P/E > deal P/E.

Earnings yield
1P/E\dfrac{1}{\text{P/E}}

Cost of paying in stock.

After-tax cost of debt
Rate×(1−Tax)\text{Rate} \times (1 - \text{Tax})

Cost of paying in cash; cheaper currency is more accretive.

Breakeven synergies (pre-tax)
Standalone EPS×PF Shares−PF NI1−Tax\dfrac{\text{Standalone EPS} \times \text{PF Shares} - \text{PF NI}}{1 - \text{Tax}}