Valuation for Mergers, Buyouts, and Restructuring, Second Edition

Appendix D

Modeling Mergers and Buyouts with DealModeler®: User's Manual

D.1 BRIEF DESCRIPTION OF DEALMODELER

D.1.1 Financial Modeling

This manual explains how to use DealModeler® to build a financial model for valuation and analysis of mergers and buyout transactions. A financial model is the quantitative expression of the business plan of a company and the basis for valuation. Its construction is required to generate the earning and cash flow projections necessary for valuing the enterprise. DealModeler contains accounting models for mergers and acquisitions (M&A) and leveraged buyouts (LBOs). It permits the analysis of a stand-alone acquisition, or a merger involving an acquirer and up to two targets or one target with a division that requires separate treatment. Similarly, it permits modeling a single LBO or roll-up LBOs with an initial investment (the acquirer) and up to two add-on acquisitions.

Many mergers assume a triangular structure in which the target is merged into a subsidiary of the acquirer (forward triangular merger) or a subsidiary of the acquirer is merged into the target (reverse triangular merger). The model permits the consolidation of the target with a subsidiary and the complete consolidation of the surviving subsidiary into the holding company by simply specifying the units involved in the transaction. Purchase, pooling, or recapitalization accounting can be chosen.¹

DealModeler generates:

• Pro-forma financial statements (balance sheet, income, and cash ...