CFM M&A Modeling & Deal Structuring Flashcards
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Read the first 6 CFM M&A Modeling & Deal Structuring flashcards as text
In an M&A accretion/dilution analysis, a deal is considered 'accretive' when:
Answer: The acquirer's post-deal EPS is higher than its standalone EPS
A deal is accretive when the combined entity's earnings per share exceeds what the acquirer would have earned on a standalone basis.
Which of the following is the primary driver of dilution in an all-stock acquisition?
Answer: New shares issued to target shareholders dilute the acquirer's EPS
In a stock deal, the acquirer issues new shares to fund the purchase, increasing the share count and potentially diluting existing shareholders' EPS.
What does 'purchase price allocation' (PPA) require in M&A accounting under US GAAP?
Answer: Assigning the acquisition price to identifiable assets and liabilities at fair value, with the remainder as goodwill
Under ASC 805, the acquirer must allocate the purchase price to all identifiable assets and liabilities at fair value; any excess is recorded as goodwill.
In an M&A deal, which type of synergy refers to cost savings achieved by combining two companies' operations?
Answer: Cost synergies
Cost synergies include headcount reductions, facility consolidations, and overlapping function eliminations that reduce total operating expenses post-merger.
What is the 'breakeven synergy' in an M&A context?
Answer: The level of synergies required to justify the premium paid over the target's standalone value
Breakeven synergies represent the minimum synergy realization needed to make the acquisition price economically rational given the premium paid.
Which structure allows an acquirer to purchase a target's assets without assuming all of its liabilities?
Answer: Asset purchase
In an asset purchase, the buyer selects specific assets and liabilities to acquire, leaving unwanted liabilities (such as contingent legal claims) with the seller.