Looking to get a better conceptual understanding of merger models. I've done a couple practice ones but never a full model on the job yet, so questions may be rudimentary.
Is excess cash put towards the equity purchase price only the Acquirer's cash, or can it include the Target's as well? (already leaning one way on this, but my rationale is weak)
To calculate how much leverage the Acquirer can use to buy the Target, would finance-able EBITDA be the Acquirer's standalone EBITDA; Acquirer's EBITDA + Target's EBITDA; or Acquirer's EBITDA + Target's EBITDA + expected synergies?
Not urgent but really appreciate if you guys could shed some light onto this.
Correct me if i'm wrong but from what i've learnt:
1)Acquirer's cash only i believe
2)Acquirer + Target PF EBITDA. There isn't any synergies on day 1. you normal model it in by phasing it over 2-3 years, in addition to synergy realization costs
Thanks a bunch!
1) That's what I thought as well. 2) 99% of the time yes - but it turns out in this case, some cost synergies are included if the parties can prove that these can be realized around the time of close. Strange, so we'll have to see about this...
Merger Modeling (Originally Posted: 04/02/2009)
1) Do you typically value both companies as standalones and then value the merged entity.
2) In regards to the assumptions, do you just average the two together when valuing the newco. For instance, if your assuming a 35% gross margin for X and 50% for Y, would you take a weighted average to determine what newco's gross margin would be?
3) In general, when building a model, do analysts or S.A's ever come up with any of the assumptions? The MD comes tells you the assumptions and you pretty much just plug, correct?
4) Lastly, in general for building models, is there a standard model that people consult before they start building the model, or does it change based on whoever is building it?
I am trying to do a return on equity analysis - could I get some help from someone please? I am a new analyst at a small boutique.
The initial investment is $6,000,000.
The free cash flows are as follows:
2013 = 0 2014 = 0 2015 = 0 2016 = 600,000 2017 = 600,000 2018 = 600,000 2019 = 600,000 2020 = 600,000 2021 = 600,000 2022 = 600,000 2023 = 52,315,912 2024 = 64,588,052
The discount rate is 10%
The terminal value assigned to this project is 6x free cash flow.
The reason why the final two years of the projection period are so much higher is that in 2023, the debt is paid off and all free cash can flow down for equity.
Could someone give me some guidance asap in doing this calculation in excel? Thank you so much.
Why are you posting this all over the place? Once is enough.
First of all, the last 2 years are diesel because the CFs arent being used for debt service anymore? How could you possibly leverage up $6M to the point where you're borrowing ~100M. Not very plausible, also the CFs you stated are absurd which means your 10% discount rate is absurd... you're not really employed.
To answer your actual question, use the IRR function in excel using -6M as your first CF, and all the rest you listed coming next. Or discount all your cashflows back to PV and PV of CF/Initial outlay.
Given your absurd assumptions, your IRR is 30.88%.
1- common sense assumptions you need to get right 2- assumptions you come up with which are generally somewhat feasible. Down the line, SRs will fine tune this... maybe you used a 37.5% tax rate, SRs decide to use a historic average of effective tax, maybe they decide to build out a full tax schedule, etc... 3- then there are assumptions where you wouldn't have the slightest idea where to begin, so from step 1 you're conferring with your SRs and they're coming up with the assumption. 4- The models depend on what it is being used for. Some firms have templates, others build all models from scratch, and a lot of in between where you take an old model you used and modify it to use on a new transaction, maybe take out an NOL build-up out of an old model, etc...
c'mon dude, how did you get the job without knowing how to use the 12C or any given financial calculator?? CF buttons baby
Hey, I actually just wasn't sure how to incorporate the terminal value. Just recently switched into i-banking.
Merger Model P/E Neutral Question :) (Originally Posted: 10/11/2017)
If the company uses 50% debt and 50% equity to buy the company, what would be the cost of debt that makes the purchase P/E neutral (assuming a 40% tax rate)? Thank you :)
ctrl-alt-del, pure crickets, that's where I come in. Any of these useful?
More suggestions...
Fingers crossed that one of those helps you.
For guys in IB - Merger Model assumptions without management projections (Originally Posted: 09/03/2012)
Just curious how you guys forecast out the balance sheets? I mean, I have research spreads for my IS.
In banking, have you guys generally used research to spread working cap accounts? PP&E is easy (capex/D&A).
Then, the question is - for the combined BS - do you use days payable, outstanding, etc, or just add the two standalone accounts together where it makes sense?
I'm currently an analyst but have always had management projections when doing this kind of stuff, never modeled off publicly aval info from scratrch.
Thanks all
DSO/DPO is pretty typical.
Question about Merger Modeling (Originally Posted: 08/22/2014)
I've attached a valuation of a past deal (Empire acquiring Oshawa).
Thanks for the help
.
1) No, because the valuation yielded by a DCF is a control value. 2) Yes for trading multiples analysis, but you only add it to the equity components; No for precedent transactions analysis, as the synergies are priced into the purchase price.
Merger model: pro forma CF (Originally Posted: 08/19/2015)
Hey,
When calculating the pro forma FCF in a merger and accounting for the announcement/closing date of the deal: does one only take into consideration the FCF from both acquirer and target from announcement date onwards? Eg when deal is announced mid 2015, acquirer FCF = 50% (2nd half 2015) of FCF? Same for the target's FCF calc.
Thanks guys
Anyone please?
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