Mergers

How would I calculate “break-even synergies” in an M&A deal and what does the number mean?

To do this, you would set the EPS accretion / dilution to $0.00 and then back-solve in Excel to get the required synergies to make the deal neutral to EPS. It’s important because you want an idea of whether or not a deal “works” mathematically, and a high number for the break-even synergies tells you …

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How would an accretion / dilution model be different for a private seller?

The mechanics are the same, but the transaction structure is more likely to be an asset purchase or 338(h)(10) election; private sellers also don’t have Earnings Per Share so you would only project down to Net Income on the seller’s Income Statement. Note that accretion / dilution makes no sense if you have a private …

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What’s an Earnout and why would a buyer offer it to a seller in an M&A deal?

An Earnout is a form of “deferred payment” in an M&A deal – it’s most common with private companies and start-ups, and is highly unusual with public sellers. It is usually contingent on financial performance or other goals – for example, the buyer might say, “We’ll give you an additional $10 million in 3 years …

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Walk me through the most important terms of a Purchase Agreement in an M&A deal.

There are dozens, but here are the most important ones: • Purchase Price: Stated as a per-share amount for public companies. • Form of Consideration: Cash, Stock, Debt… • Transaction Structure: Stock, Asset, or 338(h)(10) • Treatment of Options: Assumed by the buyer? Cashed out? Ignored? • Employee Retention: Do employees have to sign non-solicit …

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What’s a Section 338(h)(10) election and why might a company want to use it in an M&A deal?

A Section 338(h)(10) election blends the benefits of a stock purchase and an asset purchase: • Legally it is a stock purchase, but accounting-wise it’s treated like an asset purchase. • The seller is still subject to double-taxation – on its assets that have appreciated and on the proceeds from the sale. • But the …

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