Exchange Ratio Template

Exchange Ratio Template

This exchange ratio template shows you how to calculate an exchange ratio using the offer price for the target’s shares and the acquirer’s share price.

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In mergers and acquisitions (M&A), the share exchange ratio measures the number of shares the acquiring company has to issue for each individual share of the target firm. For M&A deals that include shares as part of the consideration (compensation) for the deal, the share exchange ratio is an important metric. Deals can be all cash, all shares, or a mix of the two.

The formula for calculating the exchange ratio is:

Exchange Ratio = Offer Price for Target’s Shares / Acquirer’s Share Price

Importance of the Exchange Ratio

In the event of an all-cash merger transaction, the exchange ratio is not a useful metric. In fact, in this situation, it would be fine to exclude the ratio from the analysis. Often times, M&A valuation models will note the ratio as “0.000” or blank, when it comes to an all-cash transaction. Alternatively, the model may display a theoretical exchange ratio if the same value of the cash transaction were, instead, to be carried out by a stock transaction.

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