Proportion of debt and equity in M&A funding
07 May, by
Re: Proportion of debt and/or equity in M&A funding.
I have uploaded a free template (using a simple financial model) to determine the impact on EPS (Earnings per share) based on proportion of debt and/or equity to be applied in acquisition funding.
There are many pitfalls in M&As (Mergers & Acquisitions). Among them are
- Lack of Corporate Planning for M&A
- Lack of knowledge of extent of M&A deals to fulfil planning objectives
- Target valuation issues
- Inadequate/misdirected due diligence.
- Non-quantification of synergies for subsequent negotiations
- Overpayment for acquisitions
- Debt/equity funding considerations
- Post-acquisition integration problems
I shall be designing an 3-part e-learning course to address each of the above challenges and how they can be prevented or mitigated.
Please look out for this course at http://CFODesk.TrainerCentralsite.com. There will be insights that are not found in current books or from practical experience, especially the use of Financial Modelling to achieve certain M&A objectives.
Acquisition funding is one of the major challenges in M&A activities. Whatever proportion of debt and equity to be used for funding has implications to EPS (Earnings per share) and WACC (Weighted Average Cost of Capital) immediately, and over the long run.
This template (at https://www.cfodesk.com.sg/templates) helps determine the debt/equity proportion to achieve a desired EPS objective. But do remember that achieving EPS objective is only short-term, by design. The key objective of an acquisition is to find and extract synergies in a target so as to enhance the acquirer’s shareholder value and reduce target’s impairment post-acquisition.
Trust those who are engaged in M&A activities will find this template useful. Please share it with your friends and colleagues who may benefit tremendously from applying it.
Michael M Lee