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  • October 2007 (Revised November 2010)
  • Module Note

Evaluating M&A Deals-Equity Consideration

By: Carliss Y. Baldwin
  • Format:Print
  • | Pages:17
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Abstract

What the acquiring company pays for a target in a merger or acquisition is called "consideration." Consideration can be in the form of cash, shares, or a combination of the two. Lays out the basic mechanics of equity consideration. Derives formulas for the Deal NPV of an all-equity deal and shows how to calculate and interpret key parameters, including percentage ownership, the exchange ratio, the acquisition premium, the wealth transfer, and the target's downside protection. Explains how synergies and over-valued shares affect the Deal NPV. Also shows how to calculate critical break-even exchange ratios. Ends by looking at cash-and-stock deals.

Keywords

Mergers and Acquisitions; Equity

Citation

Baldwin, Carliss Y. "Evaluating M&A Deals-Equity Consideration." Harvard Business School Module Note 208-077, October 2007. (Revised November 2010.)
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About The Author

Carliss Y. Baldwin

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More from the Author
  • Computer-Implemented Methods and Systems for Measuring, Estimating, and Managing Economic Outcomes and Technical Debt in Software Systems and Projects: US Patent 11,126,427 B2 By: Daniel J. Sturtevant, Carliss Baldwin, Alan MacCormack, Sunny Ahn and Sean Gilliland
  • Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 7 The Value Structure of Technologies, Part 2: Strategy without Numbers By: Carliss Y. Baldwin
  • Design Rules, Volume 2: How Technology Shapes Organizations: Chapter 6 The Value Structure of Technologies, Part 1: Mapping Functional Relationships By: Carliss Y. Baldwin
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