What Is A Merger

Patrick Curtis

Reviewed by

Patrick Curtis WSO Editorial Board

Expertise: Investment Banking | Private Equity

A merger is when two or more companies combine to increase value and enhance operations. This is a pre-agreed action and is not seen as hostile. A merger should always provide increased benefits and Earnings Per Share for shareholders in both companies, or else it is unlikely to be worth doing.

The process for a merger model is as follows:

  • Calculate Purchase Price - this can be done using precedent transactions, public comparable companies and a DCF valuation.
  • Determine Financing Method - calculate the percentage of the deal which will be financed by debt, equity and stock.
  • Project & Combine Financial Profiles - the Income Statement, Balance Sheet and Cash Flow Statement of both the buyer and seller must be combined and adjusted for acquisition effects.
  • Calculate Accretion & Dilution - work out the change in EPS and create sensitivity tables to model different scenarios.

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Patrick Curtis

Patrick Curtis is a member of WSO Editorial Board which helps ensure the accuracy of content across top articles on Wall Street Oasis. He has experience in investment banking at Rothschild and private equity at Tailwind Capital along with an MBA from the Wharton School of Business. He is also the founder and current CEO of Wall Street Oasis. This content was originally created by member WallStreetOasis.com and has evolved with the help of our mentors.