The Cash / Debt / Stock mix is based on the minimum combined Cash balance and the maximum combined Debt balance.ģ) Create a Sources & Uses Schedule and Purchase Price Allocation Schedule – These schedules give more specific details about how much the Buyer is “really paying” (i.e., the treatment of the Seller’s Debt), and they describe the other acquisition effects, such as new D&A on asset write-ups.Ĥ) Combine the Balance Sheets of the Buyer and Seller (OPTIONAL) – It helps to create a Combined Balance Sheet because it lets you assess the Combined Company’s capital structure and whether or not it has reasonable levels of Debt, Equity, and Cash. Full 3-statement models help a bit, but they’re not necessary.Ģ) Estimate the Purchase Price and Form of Payment – You assume a share-price premium for a public Seller and confirm the price with the valuation methodologies for private Sellers, the purchase price is based on a valuation multiple. We normally divide a merger model into the following 8-step process:ġ) Project the Financial Statements of the Buyer and Seller – At the minimum, you need projected Income Statements for the Buyer and Seller and, ideally, simplified Cash Flow Statements. Specifically, we’ll walk through the Income Statement combination in a merger model here, since it’s one of the most important steps in the entire process. In this tutorial and walkthrough, we’ll look at one small part of a moderately complex merger model – one that might take a few hours to build, if you already have a template and much of the data filled in. ![]() ![]() You can build a fairly simple merger model that takes 30-60 minutes (or even less time), or one that takes hours or days to complete, depending on the complexity and requirements. Merger Model Definition: In a merger model, you combine the financial statements of the buyer and seller in an acquisition, reflect the effects of the acquisition, such as interest paid on new debt and new shares issued, and calculate the combined Earnings per Share (EPS) of the new entity to determine whether or not the deal is viable.
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