Merger Modeling Basics: Amortization
Hi, I was analysing the ability to pay model once more and came out with the following doubt: in theory, our sensitivity table shows how much I can afford to pay at a given Pre-tax cost of debt and a given level of synergy, however I simulated one $ amount from that table and got a dilution in my... Hi,

I was analysing the ability to pay model once more and came out with the following doubt: in theory, our sensitivity table shows how much I can afford to pay at a given Pre-tax cost of debt and a given level of synergy, however I simulated one $ amount from that table and got a dilution in my EPS (which in theory, was not supposed to happen - I used the same assumptions). And figured out that the issue is that this analysis assumes no amortization and no tax credit on amort. So basically, this model implicitly assumes a 100% cash consideration and a Stock deal structure, right?

And, if I were to simulate the maximum amount I can afford to pay in a 100% cash consideration but including the amortization and the tax credit associated with it, how should I adjust that spreadsheet to compute these items? Can anyone help me with it?

Many thanks! Read More

Carve-out Accounting
I'm curious as to how a Parent Company should account for a carve-out >50% of Sub, retains legal control). According to Macabacus, if the parent is selling secondary shares, the accounting should be as follows (i picked arbitrary numbers): dr. Cash 10 cr, Minority Interest 8 cr. Gain on C... I'm curious as to how a Parent Company should account for a carve-out >50% of Sub, retains legal control). According to Macabacus, if the parent is selling secondary shares, the accounting should be as follows (i picked arbitrary numbers):

dr. Cash 10
cr, Minority Interest 8
cr. Gain on Carve-Out (I/S) 2

My question is what they mean by the "Gain on Carve-Out." Are they implying that the Gain is recognized on the I/S, which then hits the Net Income, and subsequently Retained Earnings? Read More

Adv Merger Model
Balance Sheet Adjustment Intangible Assets:

Have listened to the justification on the video and it is not hitting home. Please explain why the Balance Sheet amount of the Target Company is deducted from the Intangible Assets adjustment (PPA amount)

Thanks

Purchase Price - Net Tangible Book Value
In the context of an accretion/dilution analysis, got a quick question for you: is it valid to calculate amortization of [purchase price in excess of net tangible book value] as: = [ [ [Equity purchase price in an M&A transaction ] – [book value of equity – goodwill – intangible assets]... In the context of an accretion/dilution analysis, got a quick question for you: is it valid to calculate amortization of [purchase price in excess of net tangible book value] as:
= [ [ [Equity purchase price in an M&A transaction ] – [book value of equity – goodwill – intangible assets] ] * % of the excess that is allocated to intangibles ] / [number of amortization years]
Just want to make sure I’m looking at it the right way. Read More

PV of Synergies in an M&A Deal
Let’s say you’re calculating the PV of synergies per share in an M&A deal. and let’s say Target expects to have $250mm in SG&A savings during years 1-5, as well as into forever (ie terminal value). And let’s say that we are using a 10x terminal multiple approach to calculate terminal... Let’s say you’re calculating the PV of synergies per share in an M&A deal. and let’s say Target expects to have $250mm in SG&A savings during years 1-5, as well as into forever (ie terminal value). And let’s say that we are using a 10x terminal multiple approach to calculate terminal value.

Question: am I correct to calculate terminal value of the SG&A savings as = [$250mm pretax SG&A savings] * (1- tax rate) * (10x terminal multiple)?

Rationale for tax-effecting the SG&A synergies: I want to take the Total Present Value of Synergies (which = Present Value of Year 1 through 5 Synergies + Terminal Value of Synergies), and divide that by Target shares outstanding, to show Synergies Per Share. Then I’m going to add that Synergies per share number to the Target’s Standalone Equity Value per share to show “Maximum Value of Target Per Share.”

Is this correct? Read More