M&A and Merger Models

Core

Purchase price, funding mix, goodwill, synergies, and accretion / dilution.

Set the purchase price (offer price times target diluted shares, plus refinanced debt and fees) and fund it in sources and uses with cash, new debt or new acquirer stock. Cash costs forgone interest income, debt costs after-tax interest, and stock costs extra shares, with a cost equal to one over the acquirer's P/E. The purchase price allocation writes up assets and records goodwill, and write-ups create extra D&A. Pro forma net income is both companies' net income plus after-tax synergies minus these costs; divide by pro forma shares and compare with the acquirer's standalone EPS to see whether the deal is accretive or dilutive.