Mergers and Acquisition (M&A) Financial Projection Model
Originally published: 03/06/2022 11:38
Last version published: 07/06/2022 08:24
Publication number: ELQ-58460-2
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Mergers and Acquisition (M&A) Financial Projection Model

Excel model to project and analyse the financial outcomes and feasibility of an M&A transaction

Description
PURPOSE OF TOOL

User-friendly financial model to project and analyse the financial outcomes of an M&A transaction. The model enables the user to project the financial performance and position (3-statement financial forecast) over a 5-year period of the stand-alone acquiring business, target business and merged business with the inclusion of any revenue and cost synergy benefits to the latter. The model also enables the user to qualify the intrinsic value of the stand-alone acquirer, target and merged business using the discounted cashflow (DCF) approach.

The model compares these outputs in a dashboard to help the user determine the financial feasibility of the M&A transaction including, amongst others:
- Synergy benefits vs consideration
- Revenue, EBITDA and net profit performance of combined entity vs sum of stand-alone entities
- Intrinsic enterprise and equity values before and after the transaction
- Gearing, ROE and margin development pre and post transaction
- Earnings per share pre and post transaction

The model includes 3 scenarios for synergy benefits and pro-forma financial statements for the merged business showing goodwill and impact of sources of funds for consideration.

The model follows good practice financial modelling principles and includes instructions, checks and input validations.


KEY OUTPUTS

The key outputs include:
- Projected full financial statements (Income Statement, Balance Sheet and Cash flow Statement) across 5 years presented on a yearly basis for stand-alone acquirer, target and merged business
- Discounted cash flow valuation using the projected cash flow output for acquirer, target and merged business
- Ratio Analysis based on projected financial statements for acquirer, target and merged business
- Summarised tables and charts showing:
o Key transaction outputs including, offer/market and intrinsic value per share, total synergy benefits, consideration and transaction costs
o Charts showing breakdown of synergy benefits and sources of funds
o Key performance metrics and ratio comparison between acquirer, target and merged entity in table and chart format including revenue growth, EBITDA, net profit, margin, ROE, EPS and debt to equity ratios)
o Key valuation comparison between acquirer, target and merged entity in table and chart format


KEY INPUTS

Inputs are split into Setup inputs, Acquirer entity inputs, target entity inputs and merged entity inputs.

Setup Inputs:
- Names of transaction, acquiring entity and target entity
- Currency;
- Transaction close period;
- Latest share prices and outstand shares;
- Offer premium and consideration type;
- Transaction costs;
- Naming of synergy scenarios.

Acquiring and Target Entity Projection Inputs:
- Latest P&L and balance sheet actuals;
- Forecast revenue;
- Forecast cost of sales;
- Forecast operating expenses including depreciation;
- Fixed asset additions;
- Borrowing additions/repayments;
- Dividend distributions;
- Tax rate and interest rates;
- Debtor and creditor days;
- Inventory percentage of cost of sales;
- Discount rate and terminal growth rate.

Merged Entity Inputs:
- Synergy benefits (revenue increases, cost reductions) for each scenario
- Tax rate and interest rates;
- Debtor and creditor days;
- Inventory percentage of cost of sales;
- Discount rate and terminal growth rate.
- Borrowing additions/repayments;
- Dividend distributions;
- Pro-forma opening balance sheet adjustments.


MODEL STRUCTURE

The model comprises of 10 tabs split into input ('i_'), calculation ('c_'), output ('o_’) and system tabs. The tabs to be populated by the user are the input tabs which include ‘i_Setup’ for model and transaction general assumptions and ‘i_Acquirer’, ‘i_Target’ and ‘i_Merged’ for specific projection assumptions relating to the stand-alone entity and combined entity. The calculation tabs uses the user-defined inputs to calculate and produce the projection outputs which are presented in the calculation tabs and ‘o_Dashboard’ tab.

System tabs include:
- A 'Front Sheet' containing a disclaimer, instructions and contents;
- A checks dashboard containing a summary of checks by tab.


KEY FEATURES

Other key features of this model include the following:
- The model follows good practice financial modelling guidelines and includes instructions, checks and input validations to help ensure input fields are populated accurately;
- The model enables the user to prepare projections for the acquirer, target and merged entity across a 5-year timeline with an additional 3 years of actuals in the case of the acquirer and target stand-alone businesses.
- The model includes the possibility to model synergy benefits across 3 scenarios with a drop down in the dashboard tab to change scenario.
- The model is not password protected and can be modified as required following download;
- The model is reviewed using specialised model audit software to help reduce risk of formula inconsistencies;
- Apart from projecting revenue and costs the model includes the possibility to model receivables and payables, inventory, fixed assets, borrowings, dividends and corporate tax;
- Business names, currency and transaction close date are fully customisable;
- The model included an integrated discounted cash flow valuation for acquirer, target and merged business using the projected cash flow outputs;
- The model includes a checks dashboard which summarises all the checks included in the various tabs making it easier to identify any errors.


MODIFICATIONS

If you require any be-spoke modifications to the tool, we are more than happy to assist with this. Please send us a message through the Eloquens site or contact us on: hello@useprojectify.com


ABOUT PROJECTIFY

We are a small team of financial modelling professionals with experience working in big 4 business modelling teams and strong experience supporting businesses with their financial planning and decision support needs. Our aim is to provide robust and easy-to-use models that follow good practice financial modelling guidelines and assist individuals and businesses with key financial planning and analysis processes.

We are keen to make sure our customers are satisfied with the tools / models they purchase and will be more than happy to assist with any questions or support required following or in advance of purchase.

We are also always keen to receive feedback so please do let us know any feedback you have on our models by sending us a message or submitting a review.

This Best Practice includes
1 Populated Excel Model, 1 Unpopulated Excel Model and 1 PDF Example

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Excel model to project and analyse the financial outcomes and feasibility of an M&A transaction


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