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Mergers and Acquisitions Model Overview

M&A Model Build

1

Sources & Uses

Purchase price funded by cash, debt, and acquirer stock.

2

Combined Income Statement

Pro forma after acquisition with synergies and amortization.

3

Accretion / Dilution Analysis

Combined EPS vs acquirer's standalone EPS.

4

Sensitivity

Test impact of synergy assumptions and purchase price.

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Learn the step-by-step process of building a mergers and acquisitions model in Excel and conducting an accretion/dilution analysis, using Google and Motorola as a case study.

Mergers and acquisitions (M&A) is a general term that describes the consolidation of companies or assets through various types of financial transactions.

You can find separate videos on M&A theory and accounting. In this video, we will actually build an M&A Model in Excel and perform accretion/dilution analysis for that.

We have acquired Google and target company Motorola. We’ll perform the model in 4 steps.

Step 1: Deal Assumptions

M&A accretion/dilution analysis showing impact on earnings per share

Step 2: Acquirer shares issued, Target offer value and standalone pretax net income for both

M&A model income statement with combined revenue and expense projections

Step 3: Pro Forma Net Income

Pro Forma earnings describe a financial statement that has hypothetical amounts (estimates) built into the data to give a picture of a company’s profit if certain nonrecurring items were excluded. Pro forma earnings usually leave out one-time expenses that are not a part of normal company operations such as restructuring costs following a merger.

Mergers and acquisitions financial model spreadsheet overview

Step 4: Accretion / Dilution Analysis

An accretion/dilution analysis is a simple test used to evaluate the merit of a proposed merger or acquisition deal. The accretion/dilution analysis determines if the post-transaction earnings per share (EPS) are increased or decreased.

Screenshot of a Microsoft Excel workbook labeled 'M&A Model, ' displaying an acquisition scenario with line items for purchase price, new share issuance, synergy assumptions, financing terms, interest rates, and transaction fees, culminating in calculations for overall deal costs and outcomes.

If we see accretion, it’s a good sign and the M&A transaction seems to make sense. However, you need to take into consideration not only quantitative analysis when analyzing an M&A deal but a qualitative as well to make sure that strategically the M&A transaction makes sense for both acquirer and target.