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...

Here are some key risks in an M&A deal:...

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...

The most important terms of an M&A agreement are:...

You have to adjust for the following items in the pro forma income statement: Keep in mind these adjustments are made pre-tax on the income statement, and then a tax rate is applied to see the after-tax effect....

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...

Senior debt typically has a floating interest rate. Types of senior debt include revolver and term loan. A floating rate means the interest rate is is based off of a benchmark rate (such as 1-month SOFR) plus a spread of usually 400-500 bps (4-5%). Junior debt typically has a fixed interest rate. Th...

An NOL (net operating loss) happens if a company loses money one year. In most jurisdictions, the company can spread this loss around to reduce their taxable income in future years and therefore reduce their taxes. There are usually restrictions on how many years you can go back when calculating you...

Cost synergies often involve reducing or eliminating a specific cost. For example, the combined company will not need two headquarters, so eliminating a headquarters is one source of cost savings. This might involve saving costs on salaries and rent. Cost synergies can also come from having more bar...

First, we should understand the revenue model. For example, it could be a quantity x price model, subscribers x ARPU model, etc. If the revenue synergies come from increasing one of these variables in the revenue model, such as an increase in subscribers as a result of cross-selling, then we should ...