Financial Implications Of Mergers

We sold our 120 employee $14M top line company 2 years ago. There were many lessons, but here are 5, plus a bonus, that I value the most and share with entrepreneurs regularly. 1️⃣ Everyone told me to get clear on the terms in the LOI up front. It’ll save you a ton of money in legal fees if you can nail the purchase agreement as close to perfectly the first time. This may be the best advice I got thanks to Brian A. Hall and Steve Schaffer. 2️⃣ Many founders get fired or leave shortly after selling. I got fired a year and a half in. I was self conscious until every VC/Investor and entrepreneur I knew called me the week it happened. They all said “congratulations” and “what’s next? How can we help?” That was an awesome feeling. 3️⃣ Operate as though you’re always about to sell. Our deal from LOI to close was 30 days, which is insanely fast. This was only enabled because of great accounting and HR practices. Messy records makes diligence hard and can kill your deal. Don’t be an operational slob. It’s not a good look when people look under the hood. 4️⃣ Earn outs and bonuses are never guaranteed. During negotiations everyone loves one another, but after the ink dries things can go south. I’ve heard it from other founders who’ve experienced it first hand. Targets attached to revenue, EBITDA, etc are easy to manipulate after the fact, so if you’re going to agree to earn outs tied to that or your employment at the company, make sure you consider all of the “what ifs.” What if I’m fired? What if you change company strategy? What if the definitions change? Be wary of earn outs unless you’ve got a rock solid set of attorneys and advisors that craft bullet proof plans. Better yet, just call Brian A. Hall. Best money we spent. 5️⃣ If you want to meet every financial advisor on the internet, just share that you’ve sold your company publicly. They’ll ALL call you. More importantly, have a plan and an advisor well ahead of your liquidity moment. The day wires are sent is a bad day to decide what to do with the money. You’ve worked hard to get there, have a plan for what to do with the fruits of your labor. ➡️ Bonus - selling a company that you’ve built can be an emotional rollercoaster. I describe it as being like a former President the day after the new President is sworn in. You still might get the daily intel briefings, and probably kept your Presidential slippers. But no one cares quite as much what you think, and your powers are limited compared to yesterday. Finding new purpose can be a complex process, and in my case I’ve found a lot of fun ways to stay busy. But it’s not a clear straight line and it can be emotional saying goodbye to control over something you’ve poured your heart into. Anyway, that’s it. Those are the lessons I had top of mind and in discussions with some folks considering exiting soon. Let me know if you want to hear more. #entrepreneurship

💥 Biotech M&A Is Booming?: Here’s What YOU need to know. After a quiet 2024, biotech M&A has roared back to life in 2025 and it’s not just about filling pipeline gaps anymore. Big Pharma is making bold moves, and the data tells a compelling story. Looking over 30 recent acquisitions and found that the average premium paid was around 77%. That’s not just a signal of confidence, it’s a bet on innovation. The most active buyers? Sanofi, Novartis, and Roche. Each is playing a different game, but all are chasing the same prize: differentiated science. Sanofi is going big. With deals like Blueprint Medicines and Vigil Neuroscience, they’re leaning into rare diseases, neurology, and immunology. Their average deal size? Over $3.5 billion. And they’re not shy about paying up premiums north of 1.3x show they’re serious about owning the future of specialty medicine. Novartis is taking a more platform-driven approach. Their acquisitions point to a strategy focused on RNA-based therapies and enabling technologies. Regulus Therapeutics and Anthos Therapeutics are examples of this, with premiums that reflect the value of scalable innovation. Roche, meanwhile, is making focused bets. Their acquisition of 89bio signals a strong interest in metabolic diseases, and their deal structure shows discipline targeted investment with strategic upside. Now Pfizer is making a bold move into obesity buying Metsera for $ 4.9 B. Across the board, oncology remains the most active therapeutic area, but we’re seeing a resurgence in CNS, metabolic, and rare disease deals. Asia is also stepping into the spotlight, with companies like Sun Pharma and Taiho making cross-border moves that hint at a more globalized innovation race. This is a signal: early-stage biotechs in these hot areas are acquisition targets. Platform technologies, rare disease assets, and differentiated pipelines are where the action is. The landscape is shifting. Innovation is the currency. And the next wave of biotech winners is already being written one acquisition at a time. 💬 What trends are you seeing in biotech M&A? Drop your thoughts below or DM me if you’d like to dive deeper into the data #Biotech #Pharma #MergersAndAcquisitions #BusinessDevelopment #Investing #RareDiseases #Oncology #GeneticMedicine #Innovation

3 major MASH acquisitions in under a year. Roche, GSK, now Novo. Combined value over $9B. The market's sending a clear signal: MASH has moved from speculative to strategic necessity. Here's the competitive dynamic playing out: Novo owns GLP-1s. Wegovy and Ozempic generate tens of billions annually. MASH frequently stems from obesity. Acquiring Akero Therapeutics efruxifermin gives them both ends of the treatment spectrum. They can address the obesity AND the downstream liver damage. No one else has that combination. Roche paid $3.5B for 89Bio's pegozafermin last month. Similar mechanism to efruxifermin (FGF21 analog). They're betting on a parallel path to the same market. The clinical data showed comparable efficacy, so Roche bought its way into the race rather than starting 5 years behind. GSK grabbed Boston Pharmaceuticals experimental MASH drug for $1.2B upfront earlier this year. Different mechanism (THR-β agonist), potentially complementary to FGF21 approaches. They're hedging on mechanism diversity. What this tells us: The big pharma companies with deep metabolic disease franchises have decided MASH can't be ignored anymore. The patient population is massive (6-8% globally), growing with obesity rates, and there's almost no effective treatment currently available. The companies that waited are now paying premiums to catch up. Novo Nordisk's 16% premium looks reasonable until you factor in the 42% run-up from acquisition speculation. Roche paid a 127% premium for 89bio. GSK went straight to a $1.2B upfront payment before the asset even hit meaningful clinical milestones. Early movers got better deals. Late movers are paying for speed. The next 3-5 years will determine which mechanisms actually work in MASH. Multiple programs have failed spectacularly. The ones that succeed will define a $10B+ market. The ones that fail will write off billions in acquisition costs. But here's what's interesting: None of these companies could afford NOT to play. If MASH programs succeed and you're not in the game, you've ceded an entire treatment category to competitors. The cost of missing this market is higher than the cost of buying in. We're watching portfolio strategy play out in real time. Companies aren't just buying drugs. They're buying optionality on a market that might explode or might collapse, and they've decided the risk of missing it is worse than the cost of entry. What do you think drives the better ROI here - mechanism diversity or doubling down on proven approaches like FGF21? #Biotech #Pharma #Strategy #MASH #M&A

Are mergers the future of institutional sustainability......or a limited solution to a much larger set of challenges? This has been on my mind lately.... This morning on my way to campus, I was struck by a College Viability, LLC special edition podcast with Gary Stocker and guests Jonathan Nichols (author of Requiem for a College with a recent 2nd edition release), and publisher Kate Colbert. Nichols’ central warning landed hard: no institution is too loved or too good to fail. Closures, he emphasized, are rarely sudden (check out some fantastic writing by Unity Environmental President and innovation guru Dr. Melik Peter Khoury, who has said the same); they are decades in the making. Colbert added that the shame and secrecy surrounding struggling colleges often keep leaders from even acknowledging what’s happening and being remotely transparent, much less planning for it. Their conversation underscored that transparency, proactive governance, and student-centered decision-making are not optional.......they are survival tools. Which brings me to mergers. They are not a panacea, but they are an option worth serious consideration in today’s climate of declining demographics, rising costs, and fragile tuition models. Some recent examples stand out: - Mission-driven coalitions. Otterbein and Antioch formed the Coalition for the Common Good, keeping distinct undergraduate brands while collaborating on graduate programs and shared services. - System-level diversification. Lindenwood Education System brought Dorsey and Ancora into a nonprofit parent structure to expand workforce-aligned offerings. - Sector-wide adaptations. Catholic colleges and others have turned to mergers, acquisitions, and partnerships to confront demographic pressures and overcapacity. The benefits are real (at least on paper): broader programs, shared resources, expanded reach, and stronger competitiveness. But the challenges are equally daunting: cultural clashes, integration headaches, identity loss, and legal hurdles. As Ricardo Azziz and others note, success depends on clear vision, supportive boards, strong project management, agile and respected leadership, and above all, a student-first focus. The takeaway: Mergers should be on the table, not as desperation plays, but as part of strategic planning. Institutions that start these conversations early, with transparency and courage, may protect their missions and create new opportunities for students. Those who don’t risk becoming case studies in future editions of Requiem for a College.

Investment Banking M&A: EPS Accretion and Dilution Explained (Merger Models) 🏆💰 EPS (Earnings Per Share) is a financial metric that allows analysts to compare the profitability of businesses of different sizes on a per-share basis, making it easier to assess relative performance. An EPS accretion / dilution analysis allows shareholders of an acquirer company to see whether an acquisition of a target will lead to an increase in their EPS. A crucial metric in deciding whether an acquisition should go ahead or not. Full Breakdown👇 1) EPS Formula The EPS formula takes the earnings of a business and divides it by the number of shares outstanding. Pro forma EPS = Pro forma NI / Shares outstanding 2) Calculating Earnings: Pro Forma NI When calculating the impact of a transaction on EPS, we need to use the combined or pro forma NI of the acquirer and target businesses post deal. This can be summarized using the formula: Pro forma NI = Investor (acquirer) NI + Investee (target) NI +/- Transaction effects 3) Calculating Earnings — Transaction Effects Any expected synergies due to the transaction will have to be included in the forecast income statement of the combined business and will need to be captured in the appropriate line item, most commonly SG&A expenses. The impact of synergies is to decrease SG&A costs, and therefore increase net income and EPS. The company may also have issued additional debt or used balance sheet cash to fund the deal. These impact the interest expense/income lines of the income statement, thus affecting NI and EPS. 4) Calculating Number of Shares The next item to be added to the EPS formula is the number of shares. This is the number of the acquirer’s shares just after the acquisition is completed. It is assumed to be the same as weighted average shares outstanding. A deal may cause the number of shares of the acquirer to increase if new shares are issued. This often happens where the target company’s shareholders exchange their old shares for new shares in the combined business, effectively becoming shareholders in the acquirer. The shares outstanding post deal can be calculated as: Shares outstanding = Acquirer shares (diluted) + New shares issued 5) Accretion / Dilution calculation Once the pro forma EPS is calculated it can be compared to the acquirer’s standalone EPS as follows: EPS accretion / (dilution) = Pro forma EPS / Acquirer standalone EPS – 1 The deal will be accretive when pro forma EPS is higher than standalone EPS and will be dilutive when pro forma EPS is lower than standalone EPS. 6) M&A Models A simple M&A model provides a quick and simplified view of a deal. They are quick to construct and provide a range of outputs including: • EPS accretion / dilution • Ownership analysis • Per share consideration • Sensitivity tables • Synergies vs premium analysis • WACC vs ROIC analysis Apply this theory to practical financial modeling with Financial Edge Training👇

This misunderstanding in RIA M&A transactions can cost you $$$.   Let’s talk about CAGR or compound annual growth rate to achieve earn-outs. I’ve watched sellers nod along in sales negotiations, only to realize too late that what they thought it meant, and what it actually means, are two very different things. Here’s the mistake: Sellers see a 15% CAGR target over three years and assume that means they just need to grow revenue by 15% over the full term to get the full earn-out. So, starting at $1 million, they think the goal is to hit $1.15 million by year three. Unfortunately, that’s not how CAGR works. CAGR is about compounded growth—15% per year, not 15% total. That means your year-three revenue needs to hit just over $1.52 million, not $1.15 million. It’s 1.15 × 1.15 × 1.15, not a one-time bump. And when your earn-out hinges on hitting that number, this kind of miscalculation can turn into a very expensive surprise. If your deal includes a growth-based earn-out tied to CAGR, make sure it’s spelled out—clearly. Ask for a revenue schedule that lays out the milestones. Better yet, talk through the math with the buyer before the agreement is signed. You don’t want to find out what CAGR really meant after you’ve spent three years building toward the wrong target. Have you seen this happen before? Are you going through it now? I’d love to hear your take and maybe help a few others avoid this trap along the way.

How Is a Merger Model Created? Explained in 7 Steps A merger model (or M&A model) helps evaluate the financial impact of combining two companies. It shows whether the deal is accretive or dilutive to the acquirer’s EPS and how the financials will look post-merger. Here’s how it’s built in 7 steps: 1. Input Financials of Both Companies • Collect the income statement and key balance sheet data for the acquirer and target. • Forecast both companies for the next 3–5 years. 2. Make Deal Assumptions • Define purchase price (fixed value or based on a premium). • Decide the deal structure: Cash? Stock? Debt? Or a mix? • Calculate the number of shares issued if stock is used, or interest cost if debt is involved. 3. Calculate Goodwill and Purchase Price Allocation • Compare the purchase price vs. target’s net assets to calculate goodwill. • Adjust for asset write-ups or amortization as needed. 4. Combine the Financials • Add the income statements together line-by-line. • Subtract any synergies or costs from integration. • Include interest income/expense from the financing method. 5. Calculate Pro Forma Metrics • Adjust for new share count (if stock is used). • Calculate pro forma Net Income and EPS for the combined company. 6. Accretion/Dilution Analysis • Compare the acquirer’s standalone EPS vs. post-deal EPS. • If EPS goes up → accretive deal If • EPS goes down → dilutive deal 7. Sensitivity & Scenario Analysis • Test how the model changes with different deal structures, synergies, and premiums. • Run scenarios to see how market conditions or assumptions impact the outcome. The Bottom Line • A merger model helps determine if the deal creates or destroys shareholder value. • The key is to combine financials smartly and assess the impact on earnings, valuation, and ownership. ♻️ If you find this helpful, please do consider reposting high quality content with your network. 💲 Looking to start your Career In Finance? Consider our Career Assessment Test to find 95% Accurate career match Link to Assessment: https://lnkd.in/d3HCJZva

Some thoughts on agency acquisition 'earn outs' 💰 1. Seems to me like a lot of them are designed not to be achieved. If you're going to sell to someone based on an earn out, check to see whether they're going to saddle the agency with a bunch of additional costs for things like shared services which will be out of your control. One founder I spoke to said they'd need to 3X their EBITDA to hit their earn out target 🤯 If so, you'd better be content with the initial consideration as that might be all you see. 2. Think about how motivated you are likely to be 3 years into an earn out after selling. Having spoken to a bunch of folk who sold their agencies, they usually talk about the earn out period as being painful. In some cases 'a living hell'. Three years is not a short time to spend in 'living hell'. 3. Does an earn-out even make sense if you're not in charge of the direction and decisions in the company? Make sure you have control over the progress towards the targets you're being held to. Otherwise the earn out is like being graded on someone else's exam paper. Only instead of a grade, you lose a ton of cash. 4. Exiting founders can be in a much better place to push back against an earn-out if the agency isn't totally reliant on them for sales/client relationships/management/everything 😅. In many agencies, the founder is doing the work of 3 people for the salary of 0.5 people. Take them out, the business is in trouble. Which is why the acquirer demands a fat earn out, to keep the key person in role and incentivised to keep driving the results. If you fix this, you have more leverage (and you're more valuable). === Obviously there will be many examples of earn outs that are all sunshine and rainbows. But there seems to be a whole bunch of rainy ones as well 😆

Accretion Dilution in 30 Minutes: A Walkthrough for Aspiring Bankers One of the most common questions in any M&A deal is this: Will the deal improve earnings per share, or dilute it? This is where the accretion dilution analysis comes in. You do not need a massive model to answer this. Just structure your thoughts and walk through it cleanly. Here is how. 1) Start with pro forma net income. Begin with the acquirer's net income. Then add the target’s net income, adjusting for purchase accounting items like depreciation on revalued assets. Next, subtract the after-tax interest cost of any new debt raised for the deal. If the acquirer is using cash, add back the interest they will no longer pay or receive. Also include amortisation of acquired intangibles if it affects reported earnings. 2) Now move to the share count. If the deal includes an equity raise or convertible instruments, update the share count accordingly. Be careful with dilutive options or restricted stock units. If they move EPS, they belong in the denominator. 3) Synergies and one-time costs come next. Add synergies that are likely to be realised and sustained. These could be cost savings or revenue enhancements. Do not include restructuring charges or M&A fees in the EPS calculation, though they should be disclosed. 4) Compare pro forma EPS with standalone EPS. This is where the insight lies. Run the numbers for the first two years post-deal. If pro forma EPS is higher than standalone, it is accretive. If lower, it is dilutive. Small sensitivities on cost of debt and share issue price can help round out the picture. 5) Presentation matters. Summarise your assumptions, calculations, and conclusion on one slide. The best analysts do not just model. They present clarity. Make it easy for your VP or MD to understand the outcome in seconds. Practice this. Take a real deal. Run through this flow. Build trust by showing your ability to think and explain. Pratik S Dr. Bhumi Follow Wizenius - Be Deal Ready for Investment Banking Careers and Education

Earnouts sound great… Until you realize you’ll never see the money. Buyers structure earnouts to avoid paying them. Sellers structure them to guarantee a payout. Here’s how to ensure you don’t get locked out of your own upside. ⬇️ Earnouts sound good in theory until they don’t pay out. Sellers see them as upside. Buyers see them as protection. Avoid getting shortchanged by: + Locking in clear performance metrics: Revenue, EBITDA, or customer growth? Vague targets give buyers room to manipulate outcomes. + Defining control over key drivers: If the earnout depends on hitting numbers, make sure you have the resources and decision-making power to achieve them. + Capping contingencies: Buyers may tie payouts to undefined “reasonable efforts.” Nail down specifics to avoid disputes. + Structuring payment timing carefully: Spread over multiple years? All or nothing? The schedule matters as much as the amount. + Planning for buyer behavior: Buyers might cut costs, shift priorities, or restructure post-close. Build protections that prevent them from tanking your earnout. An ambiguously drafted earnout is just a way to leave money on the table. Get it right upfront.