Merger model stuvia 2024 - Study guides, Class notes & Summaries

What's the purpose of Purchase Price Allocation in an M&A deal? Can you explain how it works? - ANSWER The ultimate purpose is to make the combined Balance Sheet balance This harder than it sounds because many items get adjusted up or down (e.g. PP&E), some items disappear altogether (e.g. the seller's Shareholders' Equity), and some new items get created (e.g. Goodwill). To complete the process, you look at every single item on the seller's Balance Sheet and then assess the fair mark...

For which of the following reasons below might an acquirer decide to purchase another company? a. The acquisition represents a good potential Internal Rate of Return (IRR) and Return on Investment (ROI) b. To acquire a high-growth company to accelerate the buyer's growth rate c. To increase the buyer's Earnings Per Share (EPS), which may result in a higher stock price for the buyer d. Because of office politics, ego, and the need for management or executives to "prove" themselv...

Walk me through a basic merger model. - ANSWER "A merger model is used to analyze the financial profiles of 2 companies, the purchase price and how the purchase is made, and determines whether the buyer's EPS increases or decreases. Step 1 is making assumptions about the acquisition - the price and whether it was cash, stock or debt or some combination of those. Next, you determine the valuations and shares outstanding of the buyer and seller and project out an Income Statement for each ...