10 02 Accretion Dilution Practice
10 02 Accretion Dilution Practice
10 02 Accretion Dilution Practice
The main transaction assumptions are shown directly below. You can find the projected 3-year
financial information for Company A and Company B below the case questions.
Transaction Assumptions:
• Target’s Existing Debt and Cash: Assume that these STAY IN PLACE and DO NOT
CHANGE in the deal. In other words, the Purchase Price should be linked to Equity
Value, not Enterprise Value.
• Expense Synergies: 5% of the Target’s OpEx + COGS (excluding D&A); Phased in Year 1:
25%, Year 2: 50%, and Year 3: 100%.
• Acquisition Debt – Interest Rate: Benchmark Interest Rate + 500 bps; Benchmark Rate
increases from 2.0% to 2.5% to 3.0%.
• Acquisition Debt – Principal Repayment: 10% per year until maturity in Year 5.
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3. Company A acquires Company B for a mix of shares and cash. The cash will be raised
through a debt issuance. How accretive or dilutive will the transaction be in Year 1, Year
2, and Year 3 in the following scenarios:
a. 20% premium; 30% cash / 70% shares.
b. 40% premium; 80% cash / 20% shares.
Calculate the pro-forma credit stats for both scenarios as well.
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