Build an Acquisition Case vs Base Case
This guide describes how to compare the value of a standalone business against the value of the same business after an acquisition, using separate models in Model Reef.
Because each scenario is implemented as a separate model, you will maintain:
One model for the Base Case (no acquisition).
One or more models for Acquisition Cases (with acquisition, funding and synergies).
Before you start
You should have:
A solid Base Case model for the standalone business.
A separate Combined or Acquisition model that incorporates the target and associated funding.
Basic valuation outputs configured in both models.
If the combined model is not ready, first work through Build an M and A Consolidation Model and Build a Synergy and Integration Model.
What you will build
A clean comparison between:
Standalone Base Case.
Post acquisition case.
A view of incremental value created or destroyed by the acquisition.
A framework for checking whether the acquisition is justified on a value basis.
Confirm the Acquisition Case model
Open the Acquisition Case model that includes:
Buyer and Target branches.
Acquisition funding flows.
Any synergy and integration cost variables.
Review:
Combined financial statements.
FCFF and FCFE series.
Project and equity valuation metrics.
Ensure this model reflects your desired view of post acquisition reality.
Align assumptions where necessary
For a fair comparison:
Check that macro assumptions such as:
Discount rates.
Tax policy.
Macro drivers. are either intentionally aligned or clearly different for good reason.
Align projection horizons between Base and Acquisition models.
Differences should primarily reflect the acquisition and its direct consequences, not unrelated assumption changes, unless those are part of the Acquisition Case logic.
Compare valuations
For each model, record:
Project NPV (FCFF based).
Equity NPV (FCFE based).
Project IRR.
Equity IRR.
Money Multiple and Payback.
Calculate:
Incremental value = Acquisition Case NPV minus Base Case NPV.
Optionally, incremental equity value and IRR for investors who fund the acquisition.
This quantifies the value impact of the deal.
Compare cash and risk profiles
Beyond point estimates of value, compare:
Cash balances over time:
Minimum cash balance in Base Case vs Acquisition Case.
Periods of higher risk in the acquisition case.
Leverage metrics:
Net debt and leverage ratios if the acquisition is debt funded.
Dependency on synergies:
Use synergy on and off variants to see how much of the incremental value is synergy driven.
This helps you understand whether the acquisition increases financial risk.
Frame the decision
Using the two models, you can frame the decision around:
Is the incremental value positive after accounting for the purchase price and funding costs.
Does the acquisition materially improve strategic position or only financial metrics.
How sensitive the incremental value is to key assumptions (use separate sensitivity and multi scenario guides if needed).
You can also create additional model copies to test different deal prices, funding mixes and synergy levels.
Check your work
Base Case and Acquisition Case models are both internally consistent and balanced.
Differences between them are clearly attributable to the acquisition and related effects.
Incremental value is computed consistently using the same valuation approach.
The analysis captures both value and risk dimensions.
Troubleshooting
Related guides
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