M&A Merger Model

Cover Page

Professional cover with deal summary, key metrics, and quick navigation to all model sections. Covers deal name and parties, transaction date and type and quick-link navigation.

Transaction Summary

High-level overview of the proposed transaction including offer price, premium, consideration mix, and key deal terms. Covers offer price & premium analysis, cash vs. stock consideration split, transaction multiples and key deal assumptions.

Acquirer Historicals & Projections

Detailed financial history and forward projections for the acquiring company. Covers 3-5 years of historical financials, revenue and margin projections and eps and share count forecasts.

Target Historicals & Projections

Complete financial profile of the target company with standalone projections. Covers historical income statement & balance sheet, standalone revenue growth assumptions and margin and cost structure analysis.

Sources and Uses

Detailed breakdown of how the transaction will be funded and where the capital goes. Covers debt financing tranches, equity contribution, transaction fees and expenses and uses of funds reconciliation.

Purchase Price Allocation

Allocates the purchase price across identifiable assets, liabilities, and intangible assets per accounting standards. Covers fair value adjustments, identifiable intangible assets, deferred tax implications and net asset calculation.

Goodwill

Calculates goodwill as the excess of purchase price over fair value of net identifiable assets. Covers goodwill calculation, impairment considerations and historical goodwill benchmarks.

Pro Forma Income Statement

Combines acquirer and target financials with transaction adjustments to show the merged entity's earnings. Covers combined revenue and expenses, interest expense from deal debt, d&a adjustments from ppa and pro forma eps.

Pro Forma Balance Sheet

Shows the combined balance sheet at closing with all acquisition adjustments. Covers asset and liability consolidation, goodwill and intangibles added, new debt and equity issued and shareholders' equity adjustments.

Synergies

Models expected cost and revenue synergies from the combination, with phasing assumptions. Covers cost synergy categories and amounts, revenue synergy estimates, phase-in timeline (year 1-3) and net synergy after implementation costs.

Integration Costs

Estimates one-time costs required to achieve synergies and integrate the two companies. Covers restructuring charges, system integration costs, retention bonuses and total integration budget.

Accretion / Dilution

The core output — determines whether the deal is accretive or dilutive to the acquirer's EPS. Covers year-by-year accretion/dilution, impact with and without synergies, break-even synergy analysis and per-share impact.

Debt Schedule

Detailed schedule of acquisition financing with amortization, interest, and covenant tracking. Covers multiple debt tranches, amortization schedules, interest rate assumptions and leverage ratio tracking.

Sensitivity Analysis

Tests how changes in key assumptions affect the deal's accretion/dilution outcome. Covers offer price sensitivity, synergy achievement scenarios, interest rate sensitivity and two-way data tables.

Comparable Transactions

Benchmarks the proposed deal against precedent M&A transactions in the industry. Covers transaction multiples (ev/ebitda, ev/revenue), premium paid analysis and deal size and structure comparisons.

Contribution Analysis

Analyzes each company's relative contribution to the combined entity across key financial metrics. Covers revenue contribution split, ebitda contribution, earnings contribution and implied ownership analysis.

Accretion / Dilution

A/D = (Pro Forma EPS − Acquirer EPS) / Acquirer EPS

Measures the percentage change in the acquirer's earnings per share resulting from the transaction. Positive = accretive, negative = dilutive.

Goodwill

Goodwill = Purchase Price − Fair Value of Net Assets

The premium paid over the fair value of the target's identifiable net assets. Recorded on the combined balance sheet.

Acquisition Premium

Premium = (Offer Price − Current Price) / Current Price

The percentage above the target's current market price that the acquirer is willing to pay to gain control.

Pro Forma EPS

PF EPS = Combined Net Income / PF Shares Outstanding

Earnings per share of the combined entity, adjusted for new shares issued, synergies, and transaction costs.

1.Evaluate Strategic Rationale Before Modeling

The financial model should validate a strategic thesis, not replace it. Before building any spreadsheet, articulate clearly why this combination makes sense: Is it about revenue synergies (cross-selling, geographic expansion), cost synergies (eliminating redundancies, scale economies), or strategic positioning (market share, technology acquisition, vertical integration)? The strategic rationale determines which synergies are realistic, what integration risks exist, and ultimately whether the deal creates value or destroys it. Models without strategic grounding produce precisely wrong answers.

2.Build Standalone Models for Both Companies

A credible merger model requires standalone financial projections for both the acquirer and the target — not just next year, but for 3-5 years. Each projection should be a mini 3-statement model with revenue drivers, margin assumptions, and cash flow. For public companies, base projections on consensus estimates and adjust where you have differentiated views. For private targets, build from due diligence data. The standalone projections establish the "without deal" baseline against which all merger economics are measured. If your standalone models are wrong, your accretion/dilution analysis will be meaningless.

3.Structure the Transaction and Model Sources & Uses

The deal structure — how much cash, how much stock, what debt financing — fundamentally shapes the merger economics. Cash deals are funded by new debt (increasing interest expense) while stock deals dilute existing shareholders. Model the sources and uses table explicitly: on the uses side, include purchase price, transaction fees, and refinancing of existing target debt. On the sources side, detail each debt tranche and the equity component. The financing structure drives pro forma interest expense, share count, and leverage — all of which directly impact accretion/dilution.

4.Combine Financials with Merger Adjustments

The pro forma income statement starts by adding the two standalone income statements together, then layering in deal-specific adjustments. Add incremental interest expense from acquisition debt. Add incremental depreciation and amortization from purchase price allocation (writing up intangible assets). Remove synergies phased in over time and add integration costs. Adjust the tax rate for the combined entity. Compute pro forma EPS using the new share count (acquirer shares plus any new shares issued as consideration). The accretion/dilution calculation — the change in EPS versus the acquirer's standalone EPS — is the headline metric that boards and shareholders focus on.

5.Sensitize and Present the Full Picture

A single-point accretion/dilution number is insufficient for decision-making. Build sensitivity tables that show how the outcome changes with different offer prices (higher premium = more dilutive), different synergy assumptions (the deal may only be accretive if synergies exceed a threshold), and different financing mixes (more stock reduces leverage risk but increases dilution). Present the analysis with comparable transactions to contextualize the premium and multiples being paid. The final output should give the board confidence that the deal creates value under reasonable assumptions and that the downside is manageable under stress scenarios.