Accretion Dilution
What is Accretion Dilution Analysis? Accretion and Dilution refer to a simple test that determines the impact of an acquisition or merger on the buying firm’s Earnings per Share (EPS). Accretion Dilution analysis helps the acquirer (buyer) weigh the consequences of the merger, incorporating all factors and complexities. Image from CFI’s M&A financial modeling...
Merger Consequences Analysis
What is Merger Consequences Analysis? Merger consequences analysis is important for assessing the impact of an M&A transaction. When the leadership/owners of a sufficiently sized company are pitched a merger or acquisition proposal, the company needs to take into consideration the financial impact that the transaction may have on the acquirer’s pro forma financial position....
Earnout
What is an Earnout? An earnout is a risk allocation mechanism for the acquirer wherein the purchase price is contingent on the “future performance” of the target company. The acquirer pays a majority of the purchase price upfront, at the time of closing the deal, and the remainder is contingent on the performance of the...
How to Build a Merger Model
How to Build a Merger Model A merger model is an analysis representing the combination of two companies that come together through an M&A process. A merger is the “combination” of two companies, under a mutual agreement, to form a consolidated entity. An acquisition occurs when one company proposes to offer cash or its shares...
Accretive
What is Accretive? In the financial context, accretive refers to an incremental benefit that occurs after a financial transaction. Depending on how it is used financially, it can refer to capital gains, a corporate finance transaction, or an accounting expense. Knowing the difference is pivotal to being an informed finance professional to ensure the data...
IPO Process
What is the IPO Process? The Initial Public Offering IPO Process is where a previously unlisted company sells new or existing securities and offers them to the public for the first time. Prior to an IPO, a company is considered to be private – with a smaller number of shareholders, limited to accredited investors (like angel investors/venture capitalists and...
Glass-Steagall Act
What is the Glass-Steagall Act? The Glass-Steagall Act, also known as the Banking Act of 1933, is a piece of legislation that separated investment and commercial banking. It was sponsored by two members of the US Congress, Senator Carter Glass and Representative Henry Steagall. Members of the House of Representatives passed the bill on May...
Underwriting
What is Underwriting? In investment banking, underwriting is the process where a bank raises capital for a client (corporation, institution, or government) from investors in the form of equity or debt securities. This article aims to provide readers with a better understanding of the capital raising or underwriting process in corporate finance from an investment banker’s...
Backstop
What is a Backstop? A backstop is a financial arrangement that creates a secondary source of funds in case the primary source is not enough to meet current needs. It can also be thought of as an insurance policy that covers the inadequacy of a source of funds. The backstop can take various forms in...
Expression of Interest (EOI)
What is an Expression of Interest (EOI)? An Expression of Interest (EOI) is one of the initial transaction documents shared by the buyer with the seller in a potential M&A deal. The EOI indicates a serious interest from the buyer that their company would be interested to pay a certain valuation and acquire the seller’s company...
