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