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)Mergers Acquisitions M&A ProcessThis guide takes you through all the steps in the M&A process. Learn how mergers and acquisitions and deals are completed. In this guide, we'll outline the acquisition process from start to finish, the various types of acquirers (strategic vs. financial buys), the importance of synergies, and transaction costs, the share exchange ratio measures the number of shares the acquiring companyStock AcquisitionIn a stock acquisition, the individual shareholder(s) sell their interest in the company to a buyer. With a stock sale, the buyer is assuming ownership of both assets and liabilities – including potential liabilities from past actions of the business. The buyer is merely stepping into the shoes of the previous owner has to issue for each individual share of the target firm. For M&A deals that includes 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 exchange ratio is:
Exchange Ratio = Offer Price for the 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 modelsMergers Acquisitions M&A ProcessThis guide takes you through all the steps in the M&A process. Learn how mergers and acquisitions and deals are completed. In this guide, we'll outline the acquisition process from start to finish, the various types of acquirers (strategic vs. financial buys), the importance of synergies, and transaction costs will note the ratio as “0.000” or blank, when it comes to a full 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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