M&A add-ons modelling

How do you model a m&a add ons case? More specifically in case of NWC / change in NWC.

If you start from the NWC you will need to have a suspicious amount in the year prior the acquisition to get a change in NWC for the year of acquisition. Then in the total NWC for organic and inorganic case you will have an issue in the total amount of NWC vs. change in NWC which do not match (since I do not include the amount of suspicion NWC in the first year).

How do you guys work around this in your model / LBO.

 

Absolutely. See below a potential example with Y0 the first year after the acquisition (forecast) and Y-1 the actual data. The question is around how I should look at the NWC of the potential add-ons for the period prior the acquisition of the target given that you do not really have NWC before that but you need to calculate the change in NWC during the same year. Let me know if more clear the question

Organic

NWC (Y0): 100
NWC (Y-1 Actual, prior LBO): 50

Change in NWC: 50

+++
M&A Add ons

NWC (Y0): 20
NWC (Y-1 Actual, prior LBO): 10 >> Fictitious figure to get a change in NWC

Change in NWC: 10

+++

Total

NWC (Y0): 120
NWC (Y-1 Actual, prior LBO): 50 >> excluding the fictitious figure and because its pre potential acquisition

Change in NWC: 60 >> issue with excluding the fictitious figure is that now the change does not match

 

What is the question? It genuinely sounds like you're just trying to apply some formulaic logic without taking a step back and thinking about what you're actually doing...

 

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