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Full Merger Model (Pro Forma Balance Sheet)

The other half of the merger model. Take the same stock-and-cash deal you ran through accretion/dilution and build the pro forma balance sheet: eliminate the target's equity, write off its goodwill, step its identifiable assets up to fair value, strike the new goodwill as the residual, fund it with debt and shares, and charge the transaction fee against opening equity, since that's the line that never shows up in run-rate EPS yet is still real book value gone on day one. Prove the opening entry balances, then roll it forward three years: earnings, dividends, cash and equity rolling, the step-up amortizing off PP&E, and goodwill flat in every column because US GAAP does not amortize it. Balance check as a formula in every year, and a diagnostic reading of what a non-zero one is telling you.

IB · Advanced · about 150 minutes · 40 guided steps

Lesson outline

Acquirer Balance Sheet (Pre-Deal)

  1. Step 1: Acquirer Total Assets and Total Liabilities + Equity

Target Balance Sheet (Pre-Deal)

  1. Step 2: Target Total Assets and Total Liabilities + Equity

Funding & Purchase Accounting

  1. Step 3: Purchase Equity Value
  2. Step 4: Cash Consideration
  3. Step 5: Stock Consideration
  4. Step 6: New Debt Raised
  5. Step 7: New Interest Expense
  6. Step 8: After-Tax Interest
  7. Step 9: After-Tax Run-Rate Synergies
  8. Step 10: Target Tangible Book Equity
  9. Step 11: Net Identifiable Assets Acquired
  10. Step 12: Goodwill Created
  11. Step 13: Annual Step-Up Amortization

Pro Forma Income & Distributions

  1. Step 14: Acquirer Net Income
  2. Step 15: Target Net Income
  3. Step 16: Realized Synergies (After Tax)
  4. Step 17: Step-Up Amortization
  5. Step 18: After-Tax Amortization Drag
  6. Step 19: Pro Forma Net Income
  7. Step 20: Dividends Paid

Pro Forma Balance Sheet

  1. Step 21: Pro Forma Cash at Close
  2. Step 22: Pro Forma Net Working Capital at Close
  3. Step 23: Pro Forma PP&E and Intangibles at Close
  4. Step 24: Pro Forma Goodwill at Close
  5. Step 25: Pro Forma Total Assets at Close
  6. Step 26: Pro Forma Debt at Close
  7. Step 27: Pro Forma Equity at Close
  8. Step 28: Pro Forma Total Liabilities + Equity at Close
  9. Step 29: Opening Pro Forma Balance Sheet — Balance Check
  10. Step 30: Cash — Rollforward
  11. Step 31: Net Working Capital — Rollforward
  12. Step 32: PP&E and Intangibles — Rollforward
  13. Step 33: Goodwill — Rollforward
  14. Step 34: Total Assets — Rollforward
  15. Step 35: Debt — Rollforward
  16. Step 36: Equity — Rollforward
  17. Step 37: Year 1 Ending Balance Sheet — Tie-Out
  18. Step 38: Total Liabilities + Equity — Rollforward
  19. Step 39: Balance Check
  20. Step 40: Year 3 Ending Balance Sheet — Tie-Out