Exchange Ratio Template

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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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Exchange Ratio Template Screenshot

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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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