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    Excel Spreadsheet For Mergers and Acquisitions Valuation

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    isomiddinov
    This document analyzes Acer Inc.'s potential acquisition of Gateway Inc. It provides financial information for both companies from 2005-2007. It then projects cash flows and growth rates if the companies merged versus remaining separate. Merging is projected to reduce costs as a percentage of revenue from 91.97% to 87.6%. It also increases projected growth rates. The net present value of merging is calculated as $6.855 million, representing a 1023% premium over Gateway's market value. In summary, the analysis finds that acquiring Gateway would likely provide cost synergies and increase growth, generating significant financial benefits for Acer.

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    Excel Spreadsheet For Mergers and Acquisitions Valuation

    Uploaded by

    isomiddinov
    6K views6 pages
    This document analyzes Acer Inc.'s potential acquisition of Gateway Inc. It provides financial information for both companies from 2005-2007. It then projects cash flows and growth rates if the companies merged versus remaining separate. Merging is projected to reduce costs as a percentage of revenue from 91.97% to 87.6%. It also increases projected growth rates. The net present value of merging is calculated as $6.855 million, representing a 1023% premium over Gateway's market value. In summary, the analysis finds that acquiring Gateway would likely provide cost synergies and increase growth, generating significant financial benefits for Acer.

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    Mergers and Acquisitions Valuation Model

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    Excel Spreadsheet for Mergers and Acquisitions Valuation

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    This document analyzes Acer Inc.'s potential acquisition of Gateway Inc. It provides financial information for both companies from 2005-2007. It then projects cash flows and growth rates if the companies merged versus remaining separate. Merging is projected to reduce costs as a percentage of revenue from 91.97% to 87.6%. It also increases projected growth rates. The net present value of merging is calculated as $6.855 million, representing a 1023% premium over Gateway's market value. In summary, the analysis finds that acquiring Gateway would likely provide cost synergies and increase growth, generating significant financial benefits for Acer.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    6K views6 pages

    Excel Spreadsheet For Mergers and Acquisitions Valuation

    Uploaded by

    isomiddinov
    This document analyzes Acer Inc.'s potential acquisition of Gateway Inc. It provides financial information for both companies from 2005-2007. It then projects cash flows and growth rates if the companies merged versus remaining separate. Merging is projected to reduce costs as a percentage of revenue from 91.97% to 87.6%. It also increases projected growth rates. The net present value of merging is calculated as $6.855 million, representing a 1023% premium over Gateway's market value. In summary, the analysis finds that acquiring Gateway would likely provide cost synergies and increase growth, generating significant financial benefits for Acer.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    of 6

    ACER Currency: TWD

    2005 2006 2007


    Revenue ### ### 462,066,080
    Cost ### ### 404,647,770
    COSTS AS % OF REVENUES 95.9% 89.1% 87.6%
    Gross profit margin 8,332,419 38,171,313 57,418,310
    Depreciation & Amortization 1,496,294 1,227,218 1,527,628
    Income before Interest and Tax 6,316,179 36,693,225 55,339,402
    Interest Expenses 385,293 443,087 509,550
    Tax 1,172,654 3,330,065 2,149,704
    % of Tax on Operating Income
    Net profit after interest & tax 4,758,232 32,920,073 52,680,148
    NET Working Capital (CA-CL) 37,083,959 51,297,201 48,783,627
    Change in WC 14,213,242 - 2,513,574
    Cash Flow Impact of Working - 14,213,242 2,513,574
    NATCF-Net After Tax Cash Flow 6,254,526 19,934,049 56,721,350

    Cash acquired from acquisition of Gateway, Inc.:


    Cash consideration $724,742
    Liabilities assumed $1,146,086
    Less: Non-cash assets acquired -$1,097,258
    Less: Goodwill -$513,466
    Total $3,481,552

    Currency: in thous USD


    GATEWAY 2005 2006
    Revenue 3,854,061 $3,980,803
    Cost 3,809,094 $3,967,982
    Cost as % of revenues 99% 100%
    Gross profit margin 44,967 $12,821
    Depreciation & Amortization 38,816 $27,578
    Income before Interest and Tax 6,151 -$14,739
    Interest expenses $18
    Tax benefit 10 $24,400.00
    % of tax on EBIT 0.16% -165.55%
    Net profit after interest & Tax 6,161 $9,643
    NET Working Capital (CA-CL) 269,105 $232,159
    Change in WC -$36,946
    Cash Flow Impact of Working $36,946
    NATCF-Net After Tax Cash Flow 44,977 $74,167
    ACER Inc. Currency: in thous USD
    2005 2006 2007
    Revenue $6,243,678 $10,765,531 $14,245,910
    Cost $5,989,846 $9,594,165 $12,475,652
    COSTS AS % OF REVENUES 95.93% 89.12% 87.57%
    Gross profit margin $253,832 $1,171,366 $1,770,258
    Depreciation & Amortization $45,582 $37,660 $47,098
    Income before Interest and Tax $208,250 $1,133,707 $1,723,160
    Interest Expenses $11,737 $13,498 $15,523
    Tax $35,723 $102,190 $66,277
    % of Tax on EBIT 17% 9% 4%
    Net profit after interest & tax $144,951 $1,010,221 $1,624,176
    NET Working Capital (CA-CL) $1,129,696 $1,574,162 $1,504,043
    Change in WC $444,466 -$70,119
    Cash Flow Impact of Working Capital -$444,466 $70,119
    NATCF-Net After Tax Cash Flow $190,533 $603,415 $1,741,393

    We will analyse whether this project - acquiring Gateway is a good decision or not
    MERGING VALUATION WORKSHEET
    Information on the bidding firm - ACER INC.

    Current Financial Information 2006 2007


    Revenues in year 2006-2007 $10,765,531 $14,245,910
    Costs as % of Revenues 89.12% 87.6%
    Tax Rate on income 8% 8%
    Interest Expenses $13,497.84 $15,522.52
    Current Depreciation and Amortization $37,660 $47,098
    NET Working Capital (CA-CL) $1,574,162 $1,504,043
    Change in WC $444,466 ($70,119)
    Cash Flow Impact of Working Capital ($444,466) $70,119
    Investment in Working Capital as % of Revenue 5.0% 5.0%

    Projections of growth in earnings


    Expected growth rate - next 5 years 8.83%
    Expected growth rate - after 5 years 6.00%

    Risk measures
    Beta of the stock (from Reuters.com) 1.01 Market Beta=1.29

    Information on the target firm - GATEWAY INC.

    Current Financial Information 2006 2007


    Revenues in year 2006 $3,980,803
    Costs as % of Revenues 99.68%
    Tax Rate on income 30%
    Interest Expenses $18
    Current Depreciation and Amortization $27,578
    NET Working Capital (CA-CL) $232,159
    Change in WC ($36,946)
    Cash Flow Impact of Working Capital $36,946
    Investment in Working Capital as % of Revenue 5.00%

    Projections of growth in earnings


    Expected growth rate - next 5 years 3.75%
    Expected growth rate - after 5 years 2.20%

    Risk measures
    Beta of the GATEWAY Inc Stock 1.12

    General Informationbased on assumptions


    Current riskfree rate 6.66%
    Risk premium over riskfree rate 5.63%
    Information on Merging benefits
    What form does the merging benefit take? 1 Formulation: (1: Cost reduction ; 2:Cost reduction and In

    I. % of the costs to revenues without merge is 91.97%


    If the merge is going to reduce % costs to revenue 87.6%

    IIa. The growth rate in earnings in the next five years without merge is 8.34%
    If the merging will increase growth, - the new growth rate is 12.00%

    IIb. The growth rate after year 5 is expected to be 5.70%


    If the merging will increase this growth rate - the new growth rate is 7.00%

    ACER (Bidder) GATEWAY (Target) A+B: No Merge A+B (Merge)


    NATCF (Free Cashflow ) $614,760 $66,292 $681,051 $1,080,181
    Growth rate for first 5 years 8.83% 3.75% 8.34% 8.34%
    Growth rate after five years 6.00% 2.20% 5.70% 5.70%
    Beta 1.01 1.12 1.02 1.02
    Req. rate of return (Discount Rate) 12.35% 12.97% 12.38% 12.38%
    Riskfree Rate 6.66%

    YEARS FCF (Acer) Term Val (A) FCF (Gateway) Term. Val (B) FCF (A+G)
    1st Year (2007) $669,043 $68,778 $737,821
    2nd Year (2008) $728,119 $71,357 $799,476
    3rd Year (2009) $792,412 $74,033 $866,445
    4th Year (2010) $862,382 $76,809 $939,191
    5th Year (2011) $938,531 $15,675,944 $79,689 $756,508 $1,018,220
    PRESENT VALUE $11,555,648 $669,868

    CONCLUSION Gains from Merge


    Most that ACER can bid for GATEWAY
    % Premium over the market price
    NOTES:
    (1) It is not simple to back out the growth rates for the combined companies when there is no merge because growth rates will change.
    (2) It is far simpler to remember that in the absence of merge the cashflows, terminal value and present value of the combined firm
    will always be equal to the sum of the same for the individual firms.
    (3) To back out the growth rate of the combined firms in the absence of merge we used the combined terminal value estimated
    in conjunction with the required rate of return to solve for the growth rate.
    ATTENTION
    PLEASE HAVE A LOOK AT COMMENTS ENTERED EACH CELL
    : Cost reduction ; 2:Cost reduction and Increase growth: 3: Only increase growth)

    Term Value (A+B) FCF (A+B:S) TV (A+B:S)


    $1,170,220
    $1,267,764
    $1,373,439
    $1,487,922
    $16,432,451 $1,611,948 $25,516,085
    $12,224,482 $19,080,216

    $6,855,734
    $7,525,602
    1023%

    rge because growth rates will change.


    resent value of the combined firm

    ined terminal value estimated

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