Monthly Archives: April 2023

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Published On - April 17, 2023

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

Buyer has $100 share price, 3M S/O, $20M net income, 40% tax rate. Target has $18 share price, 500,000 S/O, $5M net income, 40% tax rate. Buyer purchases target with 25% debt and 75% equity at $20/share. Debt has interest rate of 8%. There are $900,000 in pre-tax synergies. What is the $ value and % of accretion/dilution?

Purchase Price of Target$20 share purchase pricex 500k shares outstanding$10,000k purchase price Interest Expense$10,000k purchase pricex 25% financed by debt$2,500k debtx 8% interest rate $400 pre-tax interest expensex 60% 1- tax rate$120 after-tax interest expense # of Shares Issued$10,000k purcha...
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Published On - April 16, 2023

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

Company A has a P/E of 10x and Company B has a P/E of 12x. Company A’s cost of debt is 10%, its cost of cash interest is 1% and its tax rate is 40%. If Company A purchases Company B using 25% stock, 50% debt and 25% cash, is the deal accretive or dilutive?

Cost of Equity for Company A1÷ 10 P/E of Company A10% Weighted Average Cost of Capital (WACC)(% Equity)(Cost of Equity) + (% Debt)(Cost of Debt)(1-Tax Rate) + (% Cash)(Cost of Cash)(1-Tax Rate)= (25%)(10%) + (50%)(10%)(1-40%)+(25%)(1%)(1-40%)= 2.5%+(5%)(60%)+(0.25%)(60%)= 2.5%+3%+0.15%= 5.5%+0.15%=...
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Published On - April 15, 2023

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

Company A has a net income of $240, share price of $3 and has 160 shares outstanding. Company B has a net income of $300, share price of $4 and has 15 shares outstanding. If Company A purchases Company B in an all stock deal at a 25% premium, what is the % change in accretion or dilution?

Equity Value of Company B $4 share pricex 15 shares outstanding$60 equity valuex 1.25 (25% premium)$75 acquisition price # of Shares Issued to Buy Company B $75 equity value÷ $3 share price25 shares issued Total # of Shares Outstanding 160 common shares outstanding+ 25 shares issued185 total shares...
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Published On - April 14, 2023

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

Company E has an EBITDA of $300M and Company F has an EBITDA of $150M. Let’s say that Company E acquires Company F and realizes $50M in revenue synergies from additional unit sales and $100M from cost synergies. What is the pro forma EBITDA? Assume that the pro forma company has a gross margin of 60%.

If there are revenue synergies of $50M in additional unit sales, then this also suggests that these extra units sold will incur an additional cost. Since we know that the gross margin is 60%, we can assume that cost of goods sold can be calculated as $50M x 60% = $30M. Therefore, we are earning [&he...
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Published On - April 10, 2023

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

How are transaction fees and financing fees calculated in an M&A deal?

Transaction fees are usually based off of a percentage of the total transaction value, usually around 2.0 to 2.5%. This is paid as a one-time fee and is displayed in the income statement after operating income. Financing fees are usually based off of a percentage of the total amount of debt, usually...
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Published On - April 6, 2023

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

What are earnouts in M&A deals and why are they important?

An earnout is an agreed-upon payment to management for achieving a certain goal as part of an M&A deal, which is outlined as part of the M&A agreement. For example, an earnout could stipulate that management needs to achieve a 10% growth in gross profit in the next year in order to receive a...
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Published On - April 2, 2023

Josh Corporate Banking / Commercial Banking / Private Debt, Corporate Development, Financial Modeling, FP&A, Investment Banking, Private Equity

How do you adjust the balance sheet in an M&A deal?

First, if cash was used to acquire the target, we should remove that cash from the combined balance sheet. Then we should remove any existing shareholder’s equity out of the target’s balance sheet. If the acquiror issued new stock to acquire the target, then we should add the equity raised to th...
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