{ "item_title" : "Mergers and Acquisitions", "item_author" : [" Julian R. Sterling "], "item_description" : "The board paper says the deal creates 13,436,667 of value. The arithmetic says it destroys 17,530,855. Nobody is lying.Auchendinny Group announces the acquisition of Balmacara Holdings for an enterprise value of 248,400,000 - nine times EBITDA - and tells its board the deal creates value and is accretive to earnings from year two. Every number in that paper is defensible. So is the arithmetic that says the same deal is 15.7134 per cent dilutive in year one. The gap of 30,967,522 contains no error and no dishonesty. It is made entirely of conventions, and this book names each one.Which of the seven prices of a single deal you quote, and which of them may carry a multiple at all. Three of the seven print nine times EBITDA by construction, because taking net debt out of the numerator and putting it back in the denominator leaves the multiple where it was. The honest entry multiple, with the earn-out at fair value, is 9.3496 - and the one at the full earn-out, 9.9058, must never be quoted, because it divides the outlay of a world in which the target outperformed by the EBITDA of a world in which it has not yet.Which liabilities you call debt, and the three separate questions nobody asks separately: is it already on the balance sheet, will it bear interest afterwards, does the lender count it in the covenant. Four debt-like items, twelve answers, and most deal papers give four. One of those answers - about a lease whose rent is already inside EBITDA - is worth 4.1351 points of the headline figure. An earlier version of this book's own model gave the punitive answer, because it looked rigorous.Which year you measure, and which of four accretion columns you print. Year one runs from minus 15.7134 to plus 11.2171 on the same deal and the same accounts. The banker who says accretive from the first year is not lying: he is choosing his column, and half the market uses the one he chose. This book prints all four, which the press release will not.And what your discount rate is. On a twenty-five cell grid of cost of capital against growth, the deal creates value in one corner and destroys it in most of the others - and nobody in the room will defend a cost of capital to four decimals.Underneath sits a finding about credit agreements rather than about mergers. The margin ladder that prices this deal admits no solution at all across a band 508,424 wide, beginning exactly at the covenant rung: the rate depends on the leverage, the leverage depends on the fair value of the earn-out, and that fair value depends on the rate. The two rates refer to each other. Every credit agreement contains a ladder.One deal is carried the whole way through with the arithmetic printed rather than asserted: the seven prices, the debt-like items, the earn-out, the intrinsic value and the premium, the synergies with their ramp and their bill, how much synergy it actually takes, the allocation and the deferred tax nobody books, the twelve-line bridge from standalone to combined earnings, the charges the deal creates and the one it does not, and the seven questions to ask of somebody else's deal paper.The last chapter is about the model itself. It went through eight adversarial audit passes and sixty corrections, four of which reversed a conclusion that was already written on the page. One version was shipped with the proof of its own error printed in its output file and unread. No deal paper is audited eight times, and that is the reason for the seven questions.For chief financial officers and their teams, corporate development, board and investment committee members, advisers, credit analysts, and the equity analysts who will model the deal the morning after it is announced.", "item_img_path" : "https://covers1.booksamillion.com/covers/bam/9/79/817/275/9798172750748_b.jpg", "price_data" : { "retail_price" : "24.99", "online_price" : "24.99", "our_price" : "24.99", "club_price" : "24.99", "savings_pct" : "0", "savings_amt" : "0.00", "club_savings_pct" : "0", "club_savings_amt" : "0.00", "discount_pct" : "10", "store_price" : "" } }

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