Walk through a basic merger model
Used to analyze financial profiles of 2 companies and determine impact on EPS
- Make assumption about acquisition
Price, cash, stock or debt - Determine valuation of shares outstanding of buyer and seller and project IS for each one
- Combine income statements and get combined net income and divide by new shared income to determine EPS impact
Merger vs Acquisition
Merger is companies close in siye, acquisition one is significantly larger
Why MnA
Gain market share
Grow quicker
Good opportunity, seller is undervalues,
Strategic for tech, intellectual property
Synergies
Why is an acquisition dilutive
If additional net income the seller contributes not enough to offset buyers foregone interest on cash, additional interest paid on debt and effects of issuing additional shares
How to know if it will be accreditive or diluted
If deal involves cash, ebt and stock no rule of thumb
If only cash and debt you can compare interest and foregone cash to PTI
In all stock if byer has higher PE than seller, it will be accreditive. If you are paying more for earnings ,
