Re: Super-advanced merger modeling
Actually, those percentages were chosen at random. You have one full year until AFTER the close of the deal to solidify those numbers, which means basically it's a moving target. You would pick the numbers based on the industry you are in. For instance, a pharmeceutical company would probably result... Actually, those percentages were chosen at random. You have one full year until AFTER the close of the deal to solidify those numbers, which means basically it's a moving target. You would pick the numbers based on the industry you are in. For instance, a pharmeceutical company would probably result in more intangibles such as patents, etc, than a service based business (the latter might have more non-competes and customer lists, etc). As such, you make the most intelligent guess you can based on prior deals. The intangible asset valuation experts (i.e. Big Four Transaction Services) would be able to provide more input on those comps as there are databases for that.

In terms of the base for the percentage - it could be either - whatever you wish. We just happened to decide to do it based on unallocated portion, that's all. As long as the final number is reasonable, you could even hard code that as well. Read More

Re: Questions on basic Accretion/Dilution model
We still call it GW amortization in our model because the calculation is GW, not the entire purchase price. In our M&A Deal Structuring course, we give the example of a $200 asset. A common mistake is to depreciation the $200 but since you are adding Target Net Income in the simple accretion dil... We still call it GW amortization in our model because the calculation is GW, not the entire purchase price. In our M&A Deal Structuring course, we give the example of a $200 asset. A common mistake is to depreciation the $200 but since you are adding Target Net Income in the simple accretion dilution analysis, the book value portion is already in Target NI. As such, we want to make sure there is no double counting and the calculation is Purchase Price less Book which is your GW calculation. If you like, you can rename to something like "Marginal Asset Depreciation"; but we wanted to be clear it is the same calculation as GW.

Your summary for both Stock and Cash PE is spot on. As for Cash PE, just remember, $100 x 5x is the same as $100 / 20%. That's the rationale! And so you are comparing cost of funding in both cases. Read More

Re: Merger modeling - Purchase price allocation
The trx costs are allocated 100% to trx costs and GW. Since we chose the base of the %ages to be applied to the excess, don't allocate any trx costs to intangibles etc. Yes, correct. One should account for the grossed up DTL specifically due to any FMV. We didn't do that on our model since it was a... The trx costs are allocated 100% to trx costs and GW. Since we chose the base of the %ages to be applied to the excess, don't allocate any trx costs to intangibles etc.

Yes, correct. One should account for the grossed up DTL specifically due to any FMV. We didn't do that on our model since it was a bit too advanced and so we had to pick and choose balancing content vs. general confusion. Read More

Re: Manufacturer With Captive Finance Co.
We would model out the businesses separately to achieve separate financials and then obviously consolidate them at the end. For valuation purposes, we would to sum-of-parts on the businesses. Think of GM and GMAC back in the day - split them separately and treat GMAC as arms length, third party, and... We would model out the businesses separately to achieve separate financials and then obviously consolidate them at the end. For valuation purposes, we would to sum-of-parts on the businesses. Think of GM and GMAC back in the day - split them separately and treat GMAC as arms length, third party, and then consolidate because its still under same parent. Read More

Re: Core Model DCF - terminal cashflow
This is explained in our Basic FM course in the DCF section. Pls view the other posts in the valuation topics (or search for more info). In short, CapEx and D&A cancel out over time for a mature company and we assume minimal changes to WC.