Transaction-value mechanics
Begin with the target’s unaffected share price, offer price, diluted shares, options, convertibles, and other equity claims. Calculate equity purchase price and enterprise-value impact. Distinguish the consideration paid to sellers from debt refinanced, fees, and total financing needs.
Cash consideration
Cash can come from buyer cash, new debt, asset sales, or a combination. The model should include lost interest income on cash, new interest expense, financing fees, leverage, and the effect on credit metrics and liquidity.
Stock consideration
Stock consideration uses an exchange ratio. A fixed exchange ratio exposes the buyer and seller to price movement differently from a fixed-value structure. Model new shares, pro forma ownership, dilution, and the share-price assumptions used at announcement and closing.
Mixed consideration
A mixed deal combines cash, stock, debt, rollover, contingent payments, or other securities. Build the consideration schedule separately from financing so the economics remain clear.
Sources and uses and transaction fees
Show purchase consideration, target debt refinancing, cash acquired, fees, financing, and buyer cash. Confirm that sources equal uses. Transaction fees affect cash and accounting differently from purchase price.
Purchase accounting
The buyer records acquired identifiable assets and liabilities at fair value, recognizes identifiable intangibles, deferred taxes, and goodwill, and may adjust inventory, fixed assets, debt, and other accounts. Intangible amortization and inventory step-up can reduce reported earnings after closing. Goodwill is generally not amortized under U.S. GAAP but is tested for impairment.
Synergies and integration cost
Revenue and cost synergies need timing, probability, implementation cost, and tax treatment. Don't include the full run-rate benefit on day one. Separate synergies controllable by the buyer from assumptions dependent on customers, regulators, or market conditions.
Accretion and dilution
Compare the buyer’s standalone EPS with pro forma EPS after consideration, financing, synergies, purchase accounting, taxes, and new shares. EPS accretion can result from using cheap debt or a high P/E buyer currency and doesn't prove value creation. A deal can be accretive and destroy value if the buyer overpays.
Ownership and value transfer
In a stock deal, seller shareholders become owners of the combined company. Analyze pro forma ownership, control, governance, voting, and the value transferred under different share prices.
Regulatory and closing risk
Antitrust, bank, foreign-investment, industry, shareholder, and other approvals can affect timing and remedies. Model delay, financing duration, divestitures, and the possibility of termination where material.
Board and fairness materials
Merger proxies and registration statements can describe negotiations, board process, forecasts, banker analyses, fairness opinions, conflicts, and alternatives. A fairness opinion addresses a defined financial question under stated assumptions; it isn't a guarantee that the transaction will succeed.
Strategic analysis
The model should be connected to why the transaction exists: market access, product, capacity, technology, cost, network, tax, capital, or defense. Evaluate alternatives, integration difficulty, customer and employee risk, and what the buyer could achieve independently.