Advanced Financial Modeling: Mergers and Acquisitions (M&A)
Advanced Financial Modeling: Mergers and Acquisitions (M&A)
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Table of Contents
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CFI Instructors
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Career Map
Investment
banking Private
Equity equity
research
Sales &
trading Portfolio
management
Research
= =
Due
diligence
Corporate
Public Corporates development
accounting
Transaction
advisory Investor
relations
Treasury
Valuations
FP&A
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Advanced Financial Modeling
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Course Objectives
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M&A Model Overview
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Terms and definitions
Share/Stock Deal
The acquirer purchases the shares of the target company
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Terms and definitions
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Terms and definitions
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M&A case study
Online Company Inc. Brick ‘n’ Mortar Co. Pro Forma Business
• The acquirer • The target • 2-3% increase in revenue due to
cross-selling, pricing, etc.
• Seeking a multi-channel strategy • Has a lackluster online presence
• ~8% reduction in cost structure due
• Wants physical locations in major cities • Developed very high-performing retail
to savings in COGS, marketing and
locations with strong same-store sales
• Does not have internal expertise to open G&A / overhead
growth (i.e. organic growth)
retail locations
• Ability to significantly increase in
• Has a proven track record of opening
• Has identified targets and found the leverage in pro forma business
new locations in major cities (i.e. capital
“best” option
growth) • Makes a great deal of strategic sense
• Seeking a friendly acquisition of Brick ‘n’
• Management team is amenable to • Accretive to key per share metrics
Mortar Co.
transaction and has presented it the
• Significant value creation expected
• Sees synergies in both increased revenue offer to their board of directors
(cross-selling, new brands, etc.) and cost
• Key members of the team would stay on
savings (inventory management,
for at least 1-3 years as part of the
manufacturing, overhead)
transition
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Table of Contents
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M&A Process
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10 step M&A process
10
9 Integration
8 Financing
7 Purchase &
Sales Contract
6 Due
Diligence
5 Negotiation
4 Valuing &
Evaluating
3 Early
Discussion
2 Searching
1 for Target
Acquisition
Criteria
Acquisition
Strategy
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M&A templates and resources
Here are some of the most common templates and resources required
for each step of an acquisition
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Strategic versus financial buyers
This LBO
VS
course course
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Strategic acquisitions
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M&A model conceptual representation
Transaction
Synergies costs
Value Created
(Benefit)
Total Net
Value of
Stand-
the
alone
Consideration Target
enterprise
Paid Business
value
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M&A model conceptual representation
Consideration
Stand- Paid
alone Total Net
enterprise Value of
value the Target
Business
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M&A Modeling Steps
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M&A financial modeling steps
Acquirer & Target Models Deal Assumptions Closing Balance Sheet Pro Forma Model
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Acquirer & Target
Models
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Acquirer model steps
Acquirer Model
• Assumptions
• Income Statement
• Balance Sheet
• Supporting Schedules
• DCF Model
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Target model steps
Target Model
• Assumptions
• Income Statement
• Balance Sheet
• Supporting Schedules
• DCF Model
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M&A financial modeling steps
Revenue Revenue
Raw Materials
Cost of Goods Sold
Direct Labor
Marketing, Advertising &
Sales
Promotion
Advertising
General & Administrative
Promotion
Depreciation & Amortization Office Expense
Insurance
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Deal Assumptions
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Deal Assumptions
Deal Assumptions
• Transaction Inputs
• Purchase Price
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Closing Balance
Sheet
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Closing balance sheet
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Pro Forma
Model
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Building a pro forma model
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Accretion & Dilution
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Accretion & Dilution
Accretive Dilutive
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Accretion & Dilution
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Summary & Sensitivity
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Sensitivity Analysis
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M&A Data – PitchBook and
Capital IQ
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Pitchbook and Capital IQ
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