Mergers and Acquisitions Basics

Chapter 9. Financing Transactions

A merger and acquisition financing plan comprising balance sheet, income, and cash-flow statements for the combined firms should be developed before negotiations have been completed. Unlike the financial statements used to value the target firm, financial statements here should include the expected cost of financing the transaction—critical input because it places a limit on how much of the purchase price the buyer can offer the seller. The financial plan also provides insights into the appropriate composition of the purchase price by projecting the potential for earnings per share (EPS) dilution if the acquirer issues a substantial number of new shares, as well as the potential for higher borrowing costs if leverage ...