Accretion and Dilution Modeling Flashcards
Simple M&A Model
What are the typical balance sheet adjustments?
What about income statement adjustments?
What is the relationship between PE ratio and EPS accretion/dilution?
What happens to the PE ratio post-acquisition?
What does accretion/dilution tell you about the attractiveness of the deal?
Need to separate the short term movements in EPS and PE ratios from longer term value creation: so what happens to share price over the long term?
What is it meant when a deal is done on a cash-free, debt-free basis?
What are the different types of purchase consideration in an M&A transaction?
Is it better to finance a deal by debt or stock?
Fixed vs floating exchange ratio?
Would stock or cash consideration result in a higher valuation?
Stock consideration likely to result in lower valuation because the target shareholders participate in the potential upside of new equity
How do you calculate offer value in an M&A transaction?
Offer Value=Fully Diluted Shares Outstanding (of target) × Offer Price Per Share
Control premium calculation?
What does goodwill impairment tell you about a deal?
Overpaid! Current value of the target is lower than the acquisition cost
What is the purpose of the fairness opinion in an M&A context?
Provided by the seller’s investment bankers to the seller’s board of directors attesting to the fairness of the transaction from a third party perspective
Would a company prefer $100 revenue synergies or cost synergies?
Why would an M&A deal have a deferred revenue write-down?
What is an earnout in the context of M&A?
Who does an earnout benefit more?
How are earnouts typically structured?
Why is EBITDA the most common earn-out metric?
