Merger Model & Accretion/Dilution Analysis
Build M&A merger models with pro forma EPS analysis, synergy sensitivities, purchase price allocation, and breakeven calculations.
The board wants to know one thing before approving an acquisition: is this deal accretive or dilutive to earnings -- and the answer depends on assumptions that need to be modeled across dozens of scenarios.
Who it's for: investment banking analysts, associates, vice presidents, managing directors
Example
"Build a merger model for Company A acquiring Company B at a 25% premium" → Complete accretion/dilution analysis with sources and uses, pro forma EPS for Years 1-3, sensitivity tables across synergy levels and premiums, and breakeven synergy calculation
New here? 3-minute setup guide → | Already set up? Copy the template below.
# Merger Model
Build accretion/dilution analysis for M&A transactions. Models pro forma EPS impact, synergy sensitivities, and purchase price allocation. Use when evaluating a potential acquisition, preparing merger consequences analysis for a pitch, or advising on deal terms. Triggers on "merger model", "accretion dilution", "M&A model", "pro forma EPS", "merger consequences", or "deal impact analysis".
## Workflow
### Step 1: Gather Inputs
**Acquirer:**
- Company name, current share price, shares outstanding
- LTM and NTM EPS (GAAP and adjusted)
- P/E multiple
- Pre-tax cost of debt, tax rate
- Cash on balance sheet, existing debt
**Target:**
- Company name, current share price, shares outstanding (if public)
- LTM and NTM EPS or net income
- Enterprise value or equity value
**Deal Terms:**
- Offer price per share (or premium to current)
- Consideration mix: % cash vs. % stock
- New debt raised to fund cash portion
- Expected synergies (revenue and cost) and phase-in timeline
- Transaction fees and financing costs
- Expected close date
### Step 2: Purchase Price Analysis
| Item | Value |
|------|-------|
| Offer price per share | |
| Premium to current | |
| Equity value | |
| Plus: net debt assumed | |
| Enterprise value | |
| EV / EBITDA implied | |
| P/E implied | |
### Step 3: Sources & Uses
| Sources | $ | Uses | $ |
|---------|---|------|---|
| New debt | | Equity purchase price | |
| Cash on hand | | Refinance target debt | |
| New equity issued | | Transaction fees | |
| | | Financing fees | |
| **Total** | | **Total** | |
### Step 4: Pro Forma EPS (Accretion / Dilution)
Calculate year-by-year (Year 1-3):
| | Standalone | Pro Forma | Accretion/(Dilution) |
|---|-----------|-----------|---------------------|
| Acquirer net income | | | |
| Target net income | | | |
| Synergies (after tax) | | | |
| Foregone interest on cash (after tax) | | | |
| New debt interest (after tax) | | | |
| Intangible amortization (after tax) | | | |
| Pro forma net income | | | |
| Pro forma shares | | | |
| **Pro forma EPS** | | | |
| **Accretion / (Dilution) %** | | | |
### Step 5: Sensitivity Analysis
**Accretion/Dilution vs. Synergies and Offer Premium:**
| | $0M syn | $25M syn | $50M syn | $75M syn | $100M syn |
|---|---------|----------|----------|----------|-----------|
| 15% premium | | | | | |
| 20% premium | | | | | |
| 25% premium | | | | | |
| 30% premium | | | | | |
**Accretion/Dilution vs. Cash/Stock Mix:**
| | 100% cash | 75/25 | 50/50 | 25/75 | 100% stock |
|---|-----------|-------|-------|-------|------------|
| Year 1 | | | | | |
| Year 2 | | | | | |
### Step 6: Breakeven Synergies
Calculate the minimum synergies needed for the deal to be EPS-neutral in Year 1.
### Step 7: Output
- Excel workbook with:
- Assumptions tab
- Sources & uses
- Pro forma income statement
- Accretion/dilution summary
- Sensitivity tables
- Breakeven analysis
- One-page merger consequences summary for pitch book
## Important Notes
- Always show both GAAP and adjusted (cash) EPS where relevant
- Stock deals: use acquirer's current price for exchange ratio, note dilution from new shares
- Include purchase price allocation — goodwill and intangible amortization matter for GAAP EPS
- Synergy phase-in is critical — Year 1 is often only 25-50% of run-rate synergies
- Don't forget foregone interest income on cash used and new interest expense on debt raised
- Tax rate on synergies and interest adjustments should match the acquirer's marginal rate
What This Does
This playbook builds accretion/dilution analysis for M&A transactions. It models the pro forma EPS impact of a proposed acquisition, including purchase price analysis, sources and uses of funds, synergy assumptions with phase-in timelines, and sensitivity analysis across key variables like premium, synergy levels, and cash/stock mix.
Important: Merger models involve significant assumptions. All outputs should be reviewed by senior deal team members and validated against market data before inclusion in pitch materials or board presentations.
Quick Start
Step 1: Create a Project Folder
Create a folder for your deal workspace and place the downloaded template inside as CLAUDE.md.
mkdir -p ~/Documents/MergerModel-ProjectOmega
Step 2: Download the Template
Click Download above, then move the file into your project folder as CLAUDE.md.
mv ~/Downloads/ib-merger-model.md ~/Documents/MergerModel-ProjectOmega/CLAUDE.md
Step 3: Start Working
cd ~/Documents/MergerModel-ProjectOmega
claude
Try prompts like:
"Build a merger model for AcquirerCo buying TargetCo at a 25% premium, 50/50 cash and stock"
"Run a sensitivity table: accretion/dilution vs synergies ($0-100M) and premium (15-30%)"
"Calculate breakeven synergies for the deal to be EPS-neutral in Year 1"
"Show sources and uses assuming $500M new debt and $200M cash on hand"
Model Components
| Component | Purpose |
|---|---|
| Purchase Price Analysis | Offer price, premium, implied multiples (EV/EBITDA, P/E) |
| Sources & Uses | How the deal is funded vs. where the money goes |
| Pro Forma EPS | Year 1-3 standalone vs. combined EPS with all adjustments |
| Sensitivity Analysis | Accretion/dilution across synergy levels, premiums, and cash/stock mix |
| Breakeven Synergies | Minimum synergies for EPS neutrality in Year 1 |
Key Adjustments in Pro Forma EPS
The model captures these items when calculating pro forma net income:
- Target net income added to acquirer
- Synergies (after tax) phased in over time (typically 25-50% Year 1, 75% Year 2, 100% Year 3)
- Foregone interest on cash used in the transaction (after tax)
- New debt interest expense on acquisition financing (after tax)
- Intangible amortization from purchase price allocation (after tax, affects GAAP EPS)
- New shares issued in stock consideration (dilutes per-share metrics)
Tips and Best Practices
- Always show both GAAP and adjusted (cash) EPS where relevant -- intangible amortization makes many deals look dilutive on GAAP but accretive on cash EPS
- Stock deals: Use the acquirer's current share price for the exchange ratio and note dilution from new shares
- Synergy phase-in is critical -- Year 1 is often only 25-50% of run-rate synergies
- Do not forget foregone interest income on cash used and new interest expense on debt raised
- Tax rate on synergies and interest adjustments should match the acquirer's marginal tax rate
- Include purchase price allocation -- goodwill and intangible amortization matter for GAAP EPS
Example Prompts
"Model a 100% cash deal funded with $1B in new term loans at 6% interest"
"What happens to accretion/dilution if we shift to 75% stock / 25% cash?"
"Run a 5x5 sensitivity table: premium (15-35%) vs synergies ($25-125M)"
"Calculate the implied goodwill and intangible amortization schedule"
"Compare Year 1 GAAP EPS vs cash EPS impact of the deal"