M&A Full 2-Week Lectures

Gerencia Financiera
Mergers & Acquisitions

By: Prof. Angelo Torres
Pontificia Universidad Javeriana

Bogotá
A nivel financiero, una operación de M&A incluye algunos puntos importantes a tener
en cuenta:
Puntos importantes en M&A
Recalcular WACC 1 Recalcular FCF 2 Consolidar EEFF 3
Cambia en función de El FCF cambia en función de 4

la estructura de tipos de sinergias: Después del M&A, sobrevive
Descripción
capital y el nuevo Beta Sales un solo conjunto de estados

de la fusión (BeM&A) Costs financieros y el otro
Investments desaparece.
Efficiency
Incorrecto: promediar Las sinergias surgen porque

Conceptos claves
el WACC original. ambas compañías son capaces de En transacciones M&A, la

coordinarse como una para: cuenta Goodwill (GW) en el
Correcto: Re calculado Aumentar ventas (EBIT ↑) estado de balance captura la
con base en la estima- Disminuir costos (EBIT ↑) prima pagada por controlar al
ción de BaM&A y BeM&A Aumentar eficiencia en CAPex Target. Sin GW, el estado de
El Rd se recalcula con (CAPex↓, g↑ sin ∆CAPex) balance no balancearía
el spread corporativo. Aumentar eficiencia en WK (WK↓)
1
Re-cálculo del WACC:
Suponga los siguientes datos para las empresas:
Acquirer Target
Sales $1B $500M
$250M $100M
3% 3%
$1B $500M
1,0 1,3
1,79% 1,79%
6% 6%
6,59% 8,29%
Rwacc new if Acquirer issues new stock to acquire target stock and assumes its debt too?
1
Encontrando el beta desapalancado:
Cálculo del Costo del Equity desapalancado:
El Beta desapalancado (Ba) se calcula diferente dependiendo de si:

El nivel de deuda fluctúa o se queda constante
Se asume que el escudo fiscal exhibe los riesgo de deuda o de empresa.
1
Asumimos aquí en Gerencia Financiera que el Dm/(Em+Dm) es constante, pero Dm cambia

1

Como en Finanzas Corporativas, asumimos que Bd ~ 0 y simplificamos la fórmula.
1

Como en Finanzas Corporativas, asumimos que Bd ~ 0 y simplificamos la fórmula.
Tomamos el rumbo que el escudo fiscal exhibe el riesgo de la empresa y no el de la deuda.
1
Entonces, cuál es el nuevo Ba?
Acquirer Target
Sales $1B $500M
$250M $100M
3% 3%
$1B $500M
1,0 1,3
0,8 1,08
0
NOTAS:
Ba ponderado por ventas.
Dnew/Vnew si el target se compra a precio de mercado.
1
Estimaciones del WACC:
WACC Descripción
1 7,13% Explicación anterior Good
2 7,44%
Bad
3 7,16%
So so good
If the deal is “issue new stock and assume debt” then 1 and 3 are fair estimates (2 is
bad)
Would the simple averages work if Target was acquired by issuing 1
new acquirer debt?
En ese caso:
Asuma que Rd sube en 200 puntos básicos (mayor riesgo):

1
Rwacc estimations – revisited by buying Target with debt
WACC Descripción
Explicación anterior, cambiando Good
1 7,36% estructura de capital por incremento
en deuda
2 7,44% Bad
Bad
3 7,16%
If the deal is “buy target by financing deal with all new debt” then only 1 is good (2 & 3
are bad)
1
Conclusiones:
You must calculate the new merged entity Rwacc by:
1. Finding unlevered betas (Ba) for both companies.

2. Weight averaging Ba’s (not the Be’s) for both companies.
3. Calculating new (merged) capital structure (D/V).
4. Using 3 and 2 to get new Be to calc. new Re.
5. Recalculate Rd if told so (Rd ~Rf+Corporate Spread).
6. Using new Rd, new Re and new D/V to recalculate Rwacc.
2
Recalcule FCF:
2
Recalcule FCF:
2
Recalcule FCF:
Revenue syn: due to horizontal scope and price power.

Cost syn: due to eliminating redudancies and ECOS.
Inv syn: due to savings which now can be pocketed US, spent on
target.
Eff syn: due to being able to do more with less (think power over
suppliers)
2
Recalcule FCF:
Revenue syn: due to horizontal scope and price power.

Cost syn: due to eliminating redundancies and ECOS.
Inv syn: due to savings which now can be pocketed US, spent on
target.
Eff syn: due to being able to do more with less (think power over
suppliers)
Sales of a Merged Entity (after Sales synergies accounted) 2
SM&A1 = [(SA0+ST0+(SA0+ST0)x SynS% ]x(1+gnew) = SAT0x(1+SynS%)x(1+gnew)

1-T (1-T)

1-T (1-T)
gnew = gM&A+gsyn
gM&A = gAxSA0+gTxST0
SA0 + ST0

1-T (1-T)
gnew = gM&A+gsyn
gM&A = gAxSA0+gTxST0
SA0 + ST0
If SynS% = 0 and gsyn=0%
SM&A1 = (SA0+ST0)x(1+gM&A)
SM&A1 = (SA0+ST0)x(1+gAxSA0+gTxST0)
SA0 + ST0
SM&A1 = SA0+SA0xgA + ST0+ST0xgT
SM&A1 = SA0x(1+gA)+ST0x(1+gT)
SM&A1 = SA0 x (1+gA) + ST0 x (1+gT) only when SYNS% = 0% and gSyn = 0% !!!!
Sales Synergies (numerator and/or denominator) 2
2
FCFM&A1 =
2
FCFM&A1 = [EBITAT0/SAT0]x(1-T) x SM&A1
2
+ [DepAT0 + [ [CAPexAT0/SAT0] x SM&A1 ] x (1/10) ]
We must add the addn’l de-

preciation from recent CAPex.
We assume it has 10 yrs life
2

We must add the addn’l savings
that arise from lower expenses
(if figures given with tax effect,
+[SynExp%]x(1-T)xSM&A1 you must simply add it!)
(1-T)
2
+[SynExp%]x(1-T)xSM&A1 We must account for possible
(1-T) synergistic savings in CAPex
-[ [CAPexAT0/SAT0] –SynCAPex% ] x SM&A1

2
+[SynExp%]x(1-T)xSM&A1 We must also consider any

efficiency synergies going
(1-T) forward
-[ [WKAT0/SAT0] –SynEff% ] x SM&A1 - [WKAT0/SAT0] x SAT0

2
+[SynExp%]x(1-T)xSM&A1
We must account for increase
(1-T) in depreciation tax shields due to
writing up depreciable assets as
well as reductions in tax shields
due to lower CAPex
+[PPENETT0 x T/10 + PPEwup x T/10 – DepT0xT] – [SynCAPex% x SM&A1 x T/10]

2
+[SynExp%]x(1-T)xSM&A1
(1-T)

2
+ [DepAT0 + [ [CAPexAT0/SAT0] x SM&A1 ] x (1/10) ] A FCF or growth

synergy related to
sales affects ALL of
these terms, so the
approximation of
FCF+syn’s breaks
+[SynExp%]x(1-T)xSM&A1 down in that case
(1-T)

2
Lower expenses
Investing savings
Efficiency Savings
2
When there is a FCF or growth synergy related to Sales,
we must use the formula detailed here:
Otherwise, it is OK to use
FCFM&A1 = FCFAT0x(1+gnew)+ ∑Syn’s
2
When there is a FCF or growth synergy related to Sales,
we must use the formula detailed here:
Note: In M&A, is more convenient to have FCF shorthands based on EBITDA b/c asset write-ups distort EBIT figures (wrt to historical) due to
higher Depreciation. Also, by having FCF’s based on EBITDA’s, we don’t need the Net TS line (as it is already baked into the calculation of DepAT1)
FCFM&A1 = ([EBITDAAT0/SAT0] x SM&A1 – DepAT1)x(1-T)

+ DepAT1
+[SynExp%]x(1-T) x SM&A1
(1-T)
-[ [CAPexAT0/SAT0] – SynCAPex% ] x SM&A1
-[ [WKAT0/SAT0] – SynEff% ] x SM&A1 - [WKAT0/SAT0] x SAT0
Where DepAT1 = DepA0+(CAPexAT0/SAT0-SynCAPex%)xSM&A1/10+PPET0x(1+Adj%)/10
Otherwise, it is OK to use
FCFM&A1 = FCFAT0x(1+gnew)+ ∑Syn’s
Why is it important to know this? Because: 2
- It is a shorthand that makes easy to find FCFM&A1 w/o

having to do a full integration of Financial statements
- Is a quick dirty way to cross check your financial

statement integration from a valuation perspective
- It helps us see that a synergy in sales (whether it is

present on FCF’s or on the growth rate) is one that has
both positive and negative impacts on FCF (i.e. adds to
EBIT through sales, but increases COGS and SG&A,
increases working capital and/or increases CAPex)
- , besides the 4 FCF synergies, it allows one to see net

effect of CAPex synergies + PP&E write ups on Tax Shields
Before and after announcing M&A intentions 2
-It is very important to know the following:
I. If Purchase Price < EVM&A-EVAM , Acquirer has an M&A NPV>0
orig
II. If Purchase Price = EVM&A-EVAM , Acquirer has an M&A NPV=0
orig
III. If Purchase Price > EVM&A-EVAM , Acquirer has an M&A NPV<0
orig
- Common scenarios in exchanges are II and III (i.e. competitive sales)
- If scenario I, Acquirer’s stock goes up, Target’s goes up ++
- If scenario II, Acquirer’s stock unchanged, Target’s goes up +++
- If scenario III, Acquirer’s stock drops, Target’s goes up +++++
- In scenarios I and III, the Acquirer’s stock changes. That makes
one thing in the classroom slightly more complicated because:
-Before M&A news (EAMorig is Acquirer Market Cap before news):
- EM&A% = EM&A / (EM&A+ DM&A) = (EAM + ∆E) / (EAM + DAM + ∆E + ∆D)
orig orig orig
-After M&A news (EAMAdj is adjusted Acq’s Market Cap. EAMAdj EAMorig ):
- EM&A% = EM&A / (EM&A+ DM&A) = (EAM + ∆E) / (EAM + DAM + ∆E + ∆D)
Adj Adj orig
In Scen. I (III), EAM% is higher (lower), so DAM% is lower (higher) than before
Before and after announcing M&A intentions (Rwacc IS constant) 2
Without Long Term Debt, Scen. I (III) mean higher (lower) EAM, but Em% is 100%
Rwacc IS constant!
The number of new shares to finance the portion of ∆E is equal to ∆E/PsA

Because PsA (Acquirer’s Stock Price) is higher on Scenario I, so fewer shares to finance ∆E
Because PsA (Acquirer’s Stock Price) is lower on Scenario III, so more shares to finance ∆E
Before and after announcing M&A intentions (Rwacc NOT constant) 2
With Long Term Debt, Scen. I (III) mean higher (lower) EAM%, thus DAM% is lower (higher)
Rwacc IS NOT constant!
In Scen. I, as EAM > EAM In Scen. III, as EAM < EAM
Adj Orig Adj Orig
In Scen. I, as EAM% ↑, so DAM% ↓ In Scen. III, as EAM% ↓, so DAM% ↑
The number of new shares to finance the portion of ∆E is equal to ∆E/PsA

Because PsA (Acquirer’s Stock Price) is higher on Scenario I, so fewer shares to finance ∆E
Because PsA (Acquirer’s Stock Price) is lower on Scenario III, so more shares to finance ∆E
Circularity: Because PsAOrig changes in Sc. I or III (PsAOrig ≠ PsAAdj) and because you need PsAAdj to
estimate the number of new shares before PsAAdj is actually estimated with a moving Rwacc!!!
aa
Circularity: Because PsAOrig changes on Sc. I or III, you need PsAAdj before estimating PsAAdj itself!
Circularity is easily solved using Excel. Excel iterates to find it and, as

it does so, Be changes (Be=Ba/EM&A%, with EM&A% and Rwacc changing simultaneously!)
See PDF Appendix
aa

Financing M&A deal with different mix of ∆E and ∆D
cquirer arget M&A

aa

Excel searching for equilibrium stock price
Price Discovery when deal financed only with Equity

NPV>0 NPV<0 NPV = 0
Excel looks for lowest error by iterating
When NPV = 0, stock price before and after merger is same!

aa

But, in class and during exams, Excel is a no-show and iterating

by hand is a daunting task for you and me.
What we can do is “assume” that, for our examples, we are
Scenario II (Acquirer buys Target for its fairest price, where NPV=0)
If we are on Scenario II, as Stock Price does not change, then EM&A%:
EM&A% = EM&A / (EM&A+ DM&A) = (EAM + ∆E) / (EAM + DAM + ∆E + ∆D)
orig orig orig
AND
the number of new shares to issue for ∆E is ∆E/PsAorig
Why?: Because PP = EM&A - EAM , and consequently PsAorigis equal to PsAAdj
orig
3
Consolidar Estados Financieros:
Recalculated?
Efectos en los Estados Financieros:
Introduced
Revalued?
Acquirer Target Merged entity Delta
Cash $300 Cash $100 Cash $400 $300+$100 0
A/R $200 A/R $75 A/R $240 $200+$40 X -35
Inv $170 Inv $135 Inv $270 $170+$100 X -35
Goodwill $0 Goodwill $0 Goodwill $125 See below X
PPE $150 PPE $125 PPE $350 $150+$200 X +75
OLTA $200 OLTA $175 OLTA $400 $200+$200 X +25
Tot Assets $1020 Tot Assets $610 Tot Assets $1785
A/P $60 A/P $60 A/P $120 $60+$60 X 0

STD $0 STD $60 STD $60 $0+$60 X 0
LTD $250 LTD $100 LTD $850 $250+$600 X
OLTL $10 OLTL $40 OLTL $55 $10+$45 X +5
Tot Liab $320 Tot Liab $260 Tot Liab $1085
C/S+APIC $400 C/S+APIC $250 C/S+APIC $400 No new stock x

R/E $300 R/E $100 R/E $300 $300+$100-$100
Tot Eqty $700 Tot Eqty $350 Tot Eqty $700
Goodwill = Purchase Price – (IKTarget+ECTarget) – (∆Assets Adj’s - ∆Liab’s Adj’s)
=-35-35+75+25-(0+0+5)
Deal financed with 16% Debt Adj’s due to T Adj’s due to T
3
Deal financed with 0% Debt

Revaluation Revaluation
Acquiror Target and Financing M&A Acquiror Target and Financing M&A
Cashs $300 $100 $400 Cashs $300 $100 $400
A/R $200 $75 ($35) $240 A/R $200 $75 ($35) $240
Inv $170 $135 ($35) $270 Inv $170 $135 ($35) $270
Goodwill $0 $0 $125 Goodwill $0 $0 $125
PPE $150 $125 $75 $350 PPE $150 $125 $75 $350
OLTA $200 $175 $25 $400 OLTA $200 $175 $25 $400
Tot Assets $1,020 $610 $1,785 Tot Assets $1,020 $610 $1,785
A/P $60 $60 $0 $120 A/P $60 $60 $0 $120

STD $0 $60 $0 $60 STD $0 $60 $0 $60
LTD $250 $100 $100 $350 LTD $250 $100 $0 $250
OLTL $10 $40 $5 $55 OLTL $10 $40 $5 $55
Tot Liab $320 $260 $585 Tot Liab $320 $260 $485
C/S+APIC $400 $250 $500 $900 C/S+APIC $400 $250 $600 $1,000
R/E $300 $100 $300 R/E $300 $100 $300
Tot Eqty $700 $350 $1,200 Tot Eqty $700 $350 $1,300
Adj’s due to T
Deal financed with 50% Debt
Revaluation Total Value

Acquiror Target and Financing M&A paid for Target
Cashs $300 $100 $400
A/R $200 $75 ($35) $240
Inv $170 $135 ($35) $270
Goodwill $0 $0 $125 Goodwill =
PPE
OLTA
$150
$200
$125
$175
$75
$25
$350
$400
$600M
Tot Assets $1,020 $610 $1,785 -$450M
A/P $60 $60 $0 $120 - $25M
STD
LTD
$0
$250
$60
$100
$0
$300
$60
$550
$125M
OLTL $10 $40 $5 $55 Adjustments to Adjustments to
Tot Liab $320 $260 $785 Target Asset Target Liabs
Values Values
C/S+APIC $400 $250 $300 $700

-$35-$35+$75+$25 - [$0+$0++$5]
R/E $300 $100 $300
Tot Eqty $700 $350 $1,000 Revaluation of assets and liabilities, excluding financing
Ejemplo de repaso:
Putting to practice Recalculation of Rwacc and considering

Synergies to value merged entity
On July 28, 2013, Omnicom announced it will acquire Publicis

(its competitor in Europe)
Before Announcement
Omnicom Publicis
Be OMC Be Pub
2 1.8
1.6
1.5 1.4
1.2
1 1
0.8
0.6
0.5
0.4
0.2
0 0
30 25 20 15 10 5 0 30 25 20 15 10 5 0
Ps on 12/8/12 = $48.56, # Sh = 257M, Em% = 73.7% Ps on 12/8/12 = $44.61, # Sh = 198M, Em% = 93.3%
Em% = $48.56x0.257B / [$48.56x0.257B + $4.45B] Em% = $44.61x1.35x0.198B / [$44.61x0.198Bx1.35 + 0.650B x 1.35]
SOMC = $14.2B, SPUB = $8.7B, BaM&A = (73.7%x1.4x$14.2B + 93.3%x0.95x$8.7B)/($14.2B+$8.7B) = 0.968

BeM&A = BaM&A/EM&A% = 0.968/80% = 1.21
Notes: Betas for Equity where 1.4 (for OMC) and .95 (for Publicis) before M&A announcement
Before Announcement
Omnicom Publicis
Before Announcement
Omnicom Publicis
FCF0 = $1.8Bx(1-40%) + $0.182B-$0.226B-(-$0.025) = $1.06B FCF0 = [1.1Bx(1-40%) + 0.099B-0.123B-(0.153)]x1.35 = $0.652B
EV = $48.56x0.257B + $4.45B = $16.93B EV = $44.61x0.198Bx1.35 + 0.650Bx1.35 = $12.8B
FCF1 = $1.06Bx (1+g_imp) FCF1 = $0.652B x (1+g_imp)
Rf = 1.63% Rf = 1.63%
Re = 1.63%+1.4x6% = 10%, Rd = 1.63%+180bp = 3.43% Re = 1.63%+0.95x6% = 7.33%, Rd = 1.63%+40bp = 2%

Rwacc = 10%x73.7%+3.43%x26.3%x(1-40%) = 7.91% Rwacc = 7.33%x93%+2%x7%x(1-40%) = 6.9%
EV = FCF0 x (1+g_imp)/(Rwacc-g_imp) g_imp = 1.55% EV = FCF0 x (1+g_imp)/(Rwacc-g_imp) g_imp = 1.7%

Today, October 8th, much after announcement
Omnicom Publicis
Re M&A = Rf (today = 2.64%)+1.21x6% = 9.9%
Rd M&A = Rf (today = 2.64%) + 150bp = 4.14%
Rwacc M&A = 80% x Re + 20%x(1-40%) x Rd = 8.42%
FCFAT0 = FCFOMC + FCFPUB = $1.06B+$0.652B = $1.712B
Rwacc = 8.42%
gnew = gM&A = (1.55% x 14.2 + 1.7% x 8.7) / (14.2+8.7) = 1.6%
EV M&A = EVOMC today + EVPUB today =

Omnicom Publicis
Re M&A = Rf (today = 2.64%)+1.21x6% = 9.9%
Rd M&A = Rf (today = 2.64%) + 150bp = 4.14%
Rwacc M&A = 80% x Re + 20%x(1-40%) x Rd = 8.42%
Rwacc = 8.42%
gnew = gM&A = (1.55% x 14.2 + 1.7% x 8.7) / (14.2+8.7) = 1.6%

$61.99x0.257 + $4.0 + $57.62x0.198x1.35 + 0.446x1.35 = $35.9B
Omnicom Publicis
Re M&A = Rf (today = 2.64%)+1.21x6% = 9.9%
Rd M&A = Rf (today = 2.64%) + 150bp = 4.14%
Rwacc M&A = 80% x Re + 20%x(1-40%) x Rd = 8.42%
Rwacc = 8.42%
gnew = gM&A = (1.55% x 14.2 + 1.7% x 8.7) / (14.2+8.7) = 1.6%
EC =

$61.99x0.257 + $4.0 + $57.62x0.198x1.35 + 0.446x1.35 = $35.9B
g_syn and SynRev%=0% (gnew=gM&A), FCFM&A1~ FCFAT0x(1+gnew) and you can add synergies
$35.9B ~ [EC+FCFAT0x(1+gnew)/(Rwacc-gnew)+NPV(Syn’s)]
Omnicom Publicis
Re M&A = Rf (today = 2.64%)+1.21x6% = 9.9%
Rd M&A = Rf (today = 2.64%) + 150bp = 4.14%
Rwacc M&A = 80% x Re + 20%x(1-40%) x Rd = 8.42%
Rwacc = 8.42%
gnew = gM&A = (1.55% x 14.2 + 1.7% x 8.7) / (14.2+8.7) = 1.6%
EC =

$61.99x0.257 + $4.0 + $57.62x0.198x1.35 + 0.446x1.35 = $35.9B
g_syn and SynRev%=0% (gnew=gM&A), FCFM&A1~ FCFAT0x(1+gnew) and you can add synergies
$35.9B ~ [$1.92B+($1.712Bx(1+1.6%))/(8.4%-1.6%)+$0.5B/(8.4%)]
$35.9B ≈ $33.5B
Nearly the same Enterprise Value as the market opined as of October 8th, 2013
Even assuming that the $35.9B merger valuation is
fine, the synergy values to achieve it seem large
But, even after all that bullishness, if one considers

that the likelihood of closing at the time was less
than 100%, the overpricing seems even worse!
Assume that each OMC shareholder will get 0.813 shares per each OMC share and $2 Div
each PUB shareholder will get 1 share per each PUB share and $1.35 Div
Share price before Share price now, if we estimated it
$48.56 $66.85 = [(35Bx(1-20%))-(2x0.257+1.35x0.198)]

[257.2Mx0.813+198Mx1]
Price of stock reflecting a 15% of not closing, a $2 Div for OMC shareholders and 0.813 conversion ratio
$55.18 = $48.56 x 15% + ($66.85 x 0.813 + $2) x 85%
PDF APPENDIX
aa

Financed with ∆E
Purch Price $ 200.00
New Debt $ - 0% Purchase Price < EVM&A-EVAM
New Equity $ 200.00 100% orig
NPV > 0, PsA↑
synergy $ 2.00
A cquirer T arget M&A
FCF $ 9.00 $ 7.20 $ 18.20
Be 1 0.8 0.85
Dm% 20% 10% 9%
Ba 0.8 0.72 0.77
S $ 100.00 $ 60.00
SalesX 2 2.5 20
EV $ 200.00 $ 150.00 $ 427.01 EV M&A $ 427.01
gimp 2.46% 2.80% 2.59%
Dm $ 40.00 $ 15.00 $ 40.00 Re 7.50% 90.63% 100%
# shares 10.00 5.00 21.26 11.26 Rd 2.90% 9.37% 60%
Rwacc 7.07% 7.73% Rwacc 6.96%
Ps $ 16.00 $ 27.00 Raw Value Add $ 77.01

New Ps $ 18.20 $ 37.00 How much PP below/(above) NPV=0 $ 27.01  Value retained
delta % in Ps 13.78% 37.04% original Ps $ 16.00
Ps Max $ 18.20
Avg Pr to raise equity $ 17.76
aa

Financed with ∆E and ∆D
New Debt $ 40.00 20% Purchase Price < EVM&A-EVAM
NPV > 0, PsA↑
synergy $ 2.00
FCF $ 9.00 $ 7.20 $ 18.20
Be 1 0.8 0.94
Dm% 20% 10% 18%
Ba 0.8 0.72 0.77
S $ 100.00 $ 60.00
SalesX 2 2.5 20
EV $ 200.00 $ 150.00 $ 432.96 EV M&A $ 432.96
gimp 2.46% 2.80% 2.59%
Dm $ 40.00 $ 15.00 $ 80.00 Re 8.07% 81.52% 100%
# shares 10.00 5.00 18.77 8.77 Rd 2.90% 18.48% 60%
Rwacc 7.07% 7.73% Rwacc 6.90%
Ps $ 16.00 $ 27.00 Raw Value Add $ 82.96

Ps Max $ 18.80
aa

New Debt $ 46.79 20% Purchase Price = EVM&A-EVAM
NPV = 0, PsA unchanged
synergy $ 2.00
FCF $ 9.00 $ 7.20 $ 18.20
Be 1 0.8 0.96
Dm% 20% 10% 20%
Ba 0.8 0.72 0.77
S $ 100.00 $ 60.00
SalesX 2 2.5 20
EV $ 200.00 $ 150.00 $ 433.97 EV M&A $ 433.97
gimp 2.46% 2.80% 2.59%
Dm $ 40.00 $ 15.00 $ 86.79 Re 8.17% 80.00% 100%
# shares 10.00 5.00 21.70 11.70 Rd 2.90% 20.00% 60%
Rwacc 7.07% 7.73% Rwacc 6.89%
Ps $ 16.00 $ 27.00 Raw Value Add $ 83.97

Ps Max $ 16.00
aa

New Debt $ 50.00 20% Purchase Price > EVM&A-EVAM
NPV < 0, PsA↓
synergy $ 2.00
FCF $ 9.00 $ 7.20 $ 18.20
Be 1 0.8 0.97
Dm% 20% 10% 21%
Ba 0.8 0.72 0.77
S $ 100.00 $ 60.00
SalesX 2 2.5 20
EV $ 200.00 $ 150.00 $ 430.19 EV M&A $ 430.19
gimp 2.46% 2.80% 2.59%
Dm $ 40.00 $ 15.00 $ 90.00 Re 8.24% 79.08% 100%
# shares 10.00 5.00 23.56 13.56 Rd 3.25% 20.92% 60%
Rwacc 7.07% 7.73% Rwacc 6.93%
Ps $ 16.00 $ 27.00 Raw Value Add $ 80.19

New Ps $ 14.44 $ 47.00 How much PP below/(above) NPV=0 $ (19.81) Value retained
delta % in Ps -9.74% 74.07% original Ps $ 16.00
Ps Max $ 14.44
Did you see how Rwacc veered up?

GRAVEYARD
Purchase
Acquirer Target M&A Price EVM&A-EVAOrig
100M 50M
$1.0 $1.0
Scen. I
$100M $50M $180M $70M $180M - $100M

($180M)
($100M+10M)
_____________ ($70M)
_____________ NPV=$10M Ps = $1.1 = _____________
100M + $70M/$1.1
100M $1.1 50M $1.4
100M 50M
$1.0 $1.0
Scen.. II
$100M $50M $180M $80M $180M - $100M

($180M)
($100M+0M) ($80M) NPV=$0M Ps = $1.0 = _____________
_____________ _____________ 100M + $80M/$1.0
100M $1.0 50M $1.6
100M 50M
$1.0 $1.0
Scen. III
$100M $50M $180M $90M $180M - $100M

($180M)
_____________
($100M+-10M) ($90M) NPV=-$10M Ps = $0.9 = 100M + $90M/$0.9
_____________ _____________
100M $0.9 50M $1.8

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Gerencia Financiera

Mergers & Acquisitions

Pontificia Universidad Javeriana

Puntos importantes en M&A

Recalcular WACC 1 Recalcular FCF 2 Consolidar EEFF 3

Cambia en función de El FCF cambia en función de 4

capital y el nuevo Beta Sales un solo conjunto de estados

Incorrecto: promediar Las sinergias surgen porque

el WACC original. ambas compañías son capaces de En transacciones M&A, la

Suponga los siguientes datos para las empresas:

Cálculo del Costo del Equity desapalancado:

El Beta desapalancado (Ba) se calcula diferente dependiendo de si:

Cálculo del Costo del Equity desapalancado:

Asumimos aquí en Gerencia Financiera que el Dm/(Em+Dm) es constante, pero Dm cambia

Cálculo del Costo del Equity desapalancado:

Asumimos aquí en Gerencia Financiera que el Dm/(Em+Dm) es constante, pero Dm cambia

Cálculo del Costo del Equity desapalancado:

Asumimos aquí en Gerencia Financiera que el Dm/(Em+Dm) es constante, pero Dm cambia

1 7,13% Explicación anterior Good

Asuma que Rd sube en 200 puntos básicos (mayor riesgo):

You must calculate the new merged entity Rwacc by:

1. Finding unlevered betas (Ba) for both companies.

Revenue syn: due to horizontal scope and price power.

Revenue syn: due to horizontal scope and price power.

SM&A1 = [(SA0+ST0+(SA0+ST0)x SynS% ]x(1+gnew) = SAT0x(1+SynS%)x(1+gnew)

SM&A1 = [(SA0+ST0+(SA0+ST0)x SynS% ]x(1+gnew) = SAT0x(1+SynS%)x(1+gnew)

SM&A1 = [(SA0+ST0+(SA0+ST0)x SynS% ]x(1+gnew) = SAT0x(1+SynS%)x(1+gnew)

+ [DepAT0 + [ [CAPexAT0/SAT0] x SM&A1 ] x (1/10) ]

We must add the addn’l de-

+ [DepAT0 + [ [CAPexAT0/SAT0] x SM&A1 ] x (1/10) ]

+[SynExp%]x(1-T)xSM&A1 you must simply add it!)

+ [DepAT0 + [ [CAPexAT0/SAT0] x SM&A1 ] x (1/10) ]

+[SynExp%]x(1-T)xSM&A1 We must account for possible

(1-T) synergistic savings in CAPex

-[ [CAPexAT0/SAT0] –SynCAPex% ] x SM&A1

+ [DepAT0 + [ [CAPexAT0/SAT0] x SM&A1 ] x (1/10) ]

+[SynExp%]x(1-T)xSM&A1 We must also consider any

-[ [CAPexAT0/SAT0] –SynCAPex% ] x SM&A1

-[ [WKAT0/SAT0] –SynEff% ] x SM&A1 - [WKAT0/SAT0] x SAT0

+ [DepAT0 + [ [CAPexAT0/SAT0] x SM&A1 ] x (1/10) ]

-[ [CAPexAT0/SAT0] –SynCAPex% ] x SM&A1

-[ [WKAT0/SAT0] –SynEff% ] x SM&A1 - [WKAT0/SAT0] x SAT0

+[PPENETT0 x T/10 + PPEwup x T/10 – DepT0xT] – [SynCAPex% x SM&A1 x T/10]

+ [DepAT0 + [ [CAPexAT0/SAT0] x SM&A1 ] x (1/10) ]

-[ [CAPexAT0/SAT0] –SynCAPex% ] x SM&A1

-[ [WKAT0/SAT0] –SynEff% ] x SM&A1 - [WKAT0/SAT0] x SAT0

+[PPENETT0 x T/10 + PPEwup x T/10 – DepT0xT] – [SynCAPex% x SM&A1 x T/10]

+ [DepAT0 + [ [CAPexAT0/SAT0] x SM&A1 ] x (1/10) ] A FCF or growth

-[ [CAPexAT0/SAT0] –SynCAPex% ] x SM&A1

-[ [WKAT0/SAT0] –SynEff% ] x SM&A1 - [WKAT0/SAT0] x SAT0

+[PPENETT0 x T/10 + PPEwup x T/10 – DepT0xT] – [SynCAPex% x SM&A1 x T/10]

FCFM&A1 = ([EBITDAAT0/SAT0] x SM&A1 – DepAT1)x(1-T)

Where DepAT1 = DepA0+(CAPexAT0/SAT0-SynCAPex%)xSM&A1/10+PPET0x(1+Adj%)/10

- It is a shorthand that makes easy to find FCFM&A1 w/o

- Is a quick dirty way to cross check your financial

- It helps us see that a synergy in sales (whether it is

- , besides the 4 FCF synergies, it allows one to see net

The number of new shares to finance the portion of ∆E is equal to ∆E/PsA

In Scen. I, as EAM% ↑, so DAM% ↓ In Scen. III, as EAM% ↓, so DAM% ↑

The number of new shares to finance the portion of ∆E is equal to ∆E/PsA

Circularity is easily solved using Excel. Excel iterates to find it and, as

Circularity is easily solved using Excel. Excel iterates to find it and, as