M&A: A Practical Guide to Doing the Deal, 2nd Edition

CHAPTER 18 Combining the Buyer’s and Seller’s Financial Results for the M&A Analysis

In this chapter, we examine how the acquirer combines its financial projections with those of the seller. The acquirer constructs a computer model of the deal and subjects it to a variety of operating and finance scenarios. The acquirer then considers which valuation and financial arrangement is acceptable to its constituencies. If the model indicates the M&A results are within the seller’s expectations, the chances of a transaction are significantly enhanced.

At this point in the process, the potential acquirer has admitted certain facts and completed certain objectives:

• The acquirer acknowledges that M&A has no success guarantee.
• The acquirer knows that most M&A deals involve either (1) one competitor buying another or (2) a company purchasing a firm with a similar product line.
• The acquirer has conducted a historical financial analysis of the seller.
• The acquirer has completed financial projections of the seller.
• The acquirer has calculated a reasonable price for the seller, based on several valuation methods.
• The acquirer has considered the possible synergies in a deal.

With this foundation in place, the acquirer is ready to combine its projections with those of the seller to determine if the transaction works from a financial point of view.

Combining the Buyer’s and Seller’s Projections

Developing a transaction’s computer financial model involves five steps:

1. Combine stand-alone projections ...