CFM CFM M&A Modeling & Deal Structuring

Question 1

In an M&A accretion/dilution analysis, a deal is considered 'accretive' when:

Accepted Answer

The acquirer's post-deal EPS is higher than its standalone EPS

Answer

A deal is accretive when the combined entity's earnings per share exceeds what the acquirer would have earned on a standalone basis.

Question 2

Which of the following is the primary driver of dilution in an all-stock acquisition?

Accepted Answer

New shares issued to target shareholders dilute the acquirer's EPS

Answer

In a stock deal, the acquirer issues new shares to fund the purchase, increasing the share count and potentially diluting existing shareholders' EPS.

Question 3

What does 'purchase price allocation' (PPA) require in M&A accounting under US GAAP?

Accepted Answer

Assigning the acquisition price to identifiable assets and liabilities at fair value, with the remainder as goodwill

Answer

Under ASC 805, the acquirer must allocate the purchase price to all identifiable assets and liabilities at fair value; any excess is recorded as goodwill.

Question 4

In an M&A deal, which type of synergy refers to cost savings achieved by combining two companies' operations?

Accepted Answer

Cost synergies

Answer

Cost synergies include headcount reductions, facility consolidations, and overlapping function eliminations that reduce total operating expenses post-merger.

Question 5

What is the 'breakeven synergy' in an M&A context?

Accepted Answer

The level of synergies required to justify the premium paid over the target's standalone value

Answer

Breakeven synergies represent the minimum synergy realization needed to make the acquisition price economically rational given the premium paid.

CFM - Certified Financial Modeler Practice Test

CFM - Certified Financial Modeler Practice Test

CFM CFM M&A Modeling & Deal Structuring