LBO/merger/restructuring questions and answers with solutions 2025

What is a merger model used for? - ANSWER A merger model is used to look at when one company acquires another whether or not the proforma EPS is greater than the buyer's standalone EPS To do this you have to make assumptions about the purchase price / premium, the form of consideration, the interest rate on new debt, and synergies you'd expect from the transaction 1. Assumptions 2. Valuation 3. Pro forma shares 4. income statement projections 5. combine statements 6. divide by new share count Calculating Offer value and then down to enterprise value - ANSWER 1. Share price x (1+premium) = offer price -not the sensitivity analyses on price and premiums 2. Calculate FD shares ouststanding (converts and stock options) 3. Offer price 4. Add non convertible debt 5. Add debt and preferred stock 6. Add non-controlling interest Potential sources in M&A - ANSWER -Third party debt (Senior secured, SLTL, Unsecured notes, high yield bonds) -stock -excess cash on BS - minimum cash What are the assumptions you need to make in accretion / dilution model - ANSWER 1. Offer price (premium paid and premium paid to what price) 30 Day VWAP 2. Consideration: % stock vs % cash 3. How to fund cash portion (go up to a certain leverage and fund remaining with equity)