Merger Model

Merger Model

Workflow

Step 1: Gather Inputs

Acquirer:

• Company name, current share price, shares outstanding
• LTM and NTM EPS (GAAP and adjusted)
• P/E multiple
• Pre-tax cost of debt, tax rate
• Cash on balance sheet, existing debt

Target:

• Company name, current share price, shares outstanding (if public)
• LTM and NTM EPS or net income
• Enterprise value or equity value

Deal Terms:

• Offer price per share (or premium to current)
• Consideration mix: % cash vs. % stock
• New debt raised to fund cash portion
• Expected synergies (revenue and cost) and phase-in timeline
• Transaction fees and financing costs
• Expected close date

Step 2: Purchase Price Analysis

Step 3: Sources & Uses

Step 4: Pro Forma EPS (Accretion / Dilution)

Calculate year-by-year (Year 1-3):

Step 5: Sensitivity Analysis

Accretion/Dilution vs. Synergies and Offer Premium:

Accretion/Dilution vs. Cash/Stock Mix:

Step 6: Breakeven Synergies

Calculate the minimum synergies needed for the deal to be EPS-neutral in Year 1.

Step 7: Output

• Excel workbook with:
• Assumptions tab
• Sources & uses
• Pro forma income statement
• Accretion/dilution summary
• Sensitivity tables
• Breakeven analysis
• One-page merger consequences summary for pitch book

Important Notes

• Always show both GAAP and adjusted (cash) EPS where relevant
• Stock deals: use acquirer's current price for exchange ratio, note dilution from new shares
• Include purchase price allocation — goodwill and intangible amortization matter for GAAP EPS
• Synergy phase-in is critical — Year 1 is often only 25-50% of run-rate synergies
• Don't forget foregone interest income on cash used and new interest expense on debt raised
• Tax rate on synergies and interest adjustments should match the acquirer's marginal rate