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Evaluate what levels of stock price premium your potential acquisition requires to be viable

M &A Step 1: Gather Information of EACH COMPANY and place on Excel 1. Merger Model a. Evaluate accretive-ness (Requires Excel) i. Positive yield – Accept (Earnings under new entity > Per-Share) ii. Negative yield – Reject b. Calculate Enterprise Value 2. Date Timeframes a. Must adjust accordingly if financial year-ends for both companies are not the same 3. Acquirer’s Financial Information a. Adjust to cash figures b. Analyze growth level c. Model forward in time i. Example: 2018E, 2019E, 2020E ii. Use sources from: Investment Bank reports, Bloomberg Consensus, etc. iii. Type of Growth 1. One-stage, Two-stage, Three-stage 4. Target Financial Information a. Repeat the above steps Step 2: Deal Assumptions 1. How to finance the Acquisition a. All Cash i. Source of Cash MUST EQUAL the Uses b. All Stock c. Mix d. What are the implications of each method? i. Cost of Debt? ii. Issuance of Bonds? 2. Synergies (Refer to slide 21) a. Horizontal or Vertical b. Rationale 3. Tax Rate a. Apply acquirer’s tax rate to overall entity 4. Balance Sheet a. Create a new ‘Sheet’ on the workfile containing the Balance Sheet information of both Companies 5. Stock Premium Analysis a. Evaluate the premium required i. Must be accepted by shareholders AND accretive to the Acquirer Step 3: Merge the Financials/ Scenario Analysis 1. Pro Forma Income Statement a. Incorporate synergies into combined, projected income statement of post-closure merged entity 2. Analyse Various Target Stock Prices a. Ensure model can illustrate the resulting accretion for a range of potential Offer Proposal Prices for your Target Stock Price 3. Means of Payment a. Ensure model can illustrate the resulting accretion with different means of payment i. Evaluate accretion levels if: 1. Deal financed by all cash a. Interest rates b. Advisory & Transaction cost 2. Deal financed by all stock a. Advisory & Transaction cost b. Results in the dilution of the Acquirer shareholder’s stake, but offset by the acquisition of assets and liabilities of the Target 3. Mix 4. Synergies Flexibility a. Ensure model can illustrate what level of synergies would be required for your deal to breakeven in terms of being 0% accretive 5. Stock Premium Analysis a. Evaluate what levels of stock price premium your potential acquisition requires to be viable and/or acceptable to target shareholders and to be accretive to the acquirer 6. Scenario Analysis of Purchase a. Compare the outcome of different premiums i. Look at Revenues, EBITDA, EBIT, P/E ratios b. Compare to recent industry transactions c. Compare the premium to a recent range of the Target’s traded share price 7. Purchase Share Price Range a. Compared to a historical graph of the target’s share price b. Will shareholders consider this an attractive premium over the recent trading range? c. Will it be deemed opportunistic? 8. Shareholder Analysis a. Who are the biggest shareholders b. Will it affect the successfulness of the deal? Notes 1. Fully Diluted Shares Outstanding (FDSO) 2. One-Off Adjustments

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