Build an M&A Consolidation Model

This guide explains how to model a merger or acquisition by consolidating two or more existing models into a single post-transaction structure in Model Reef.

Remember that each scenario is its own model. You will typically build a dedicated post-acquisition model that combines both businesses as branches under a new group.

Before you start

• A working model for the acquirer (Buyer).

• A working model for the target (Target).

• At least a rough idea of transaction terms:

  • Purchase price.

  • Funding mix (equity, debt).

  • Timing.

• A view of any immediate integration or restructuring plans.

If you do not have both sides modelled yet, first build separate models for Buyer and Target using the core modelling guides.

What you will build

• A new combined model with:

  • Buyer as one branch.

  • Target as another branch.

  • Optional group level branch for consolidation and adjustments.

• Transaction funding flows.

• Consolidated P&L, Balance Sheet, Cashflow and Cash Waterfall.

• A post-transaction valuation.

1

Create a post acquisition model

• Decide which side you want to treat as the base structure, usually the Buyer.

• Duplicate the Buyer model and rename it, for example:

  • CombinedCo - Post Acquisition Base.

• In this new model you will:

  • Add a branch for Target.

  • Add transaction variables.

  • Layer in any integration or synergy variables later.

This model now represents the legal combined group after completion.

2

Bring in the target’s financials

There are two main approaches depending on how clean you want the integration to be.

Option A: Rebuild Target as a branch manually

• Create a branch under the group for Target.

• Recreate key variables using the Target’s existing model as reference:

  • Revenue.

  • COGS.

  • Opex and staff.

  • Assets and liabilities.

• Align:

  • Periodicity and dates with the combined model.

  • Categories and naming conventions.

Option B: Use imports to seed the target branch

If Target’s data is primarily available via PDF, Excel or accounting systems:

• Create Target branch.

• Use imports into that branch:

  • PDF or Excel for historicals.

  • Xero or QuickBooks if available.

• Map imported lines to Target’s branch, types and categories.

Either way, you want a Target branch whose standalone statements replicate the target’s standalone results.

3

Represent the acquisition accounting

Decide the level of detail you want for acquisition accounting. Model Reef does not implement full purchase accounting, but you can represent the key effects.

Typical items:

• Payment of purchase price.

• New debt or equity raised to fund the deal.

• High level goodwill and revaluation if you want a simple balance sheet representation.

In the combined model:

• Create an Equity variable or Liability variable for funding, for example:

  • Equity - Acquisition Raise

  • Debt - Acquisition Loan

• Create a Dividend from the Buyer or a simple Equity injection out of the group to represent the purchase price outflow, for example:

  • Acquisition Consideration Paid as a Dividend or Opex style adjustment.

• If you want goodwill to appear:

  • Create an Asset variable for Goodwill equal to purchase price minus the net book value of Target’s identifiable net assets.

Keep this as simple as you need for your use case.

4

Confirm standalone and consolidated views

In the combined model:

• Check Buyer branch alone:

  • Filter reports to Buyer only.

  • Ensure its performance matches the original Buyer model, adjusted for acquisition funding if modelled at Buyer level.

• Check Target branch alone:

  • Filter reports to Target.

  • Confirm that it matches the standalone Target behaviour.

• Check the group level:

  • Ensure Revenue, profit and cashflow equal the sum of Buyer and Target plus any group level adjustments.

  • Confirm Balance Sheet balances.

  • Verify Cash Waterfall reconciles.

5

Configure post acquisition valuation

At the group level:

• Open Valuation settings.

• Set:

  • WACC and equity discount rates appropriate for the combined entity.

  • Terminal value assumptions reflecting the post-acquisition profile.

• Review valuation metrics:

  • FCFF, FCFE, NPV and IRR.

  • Equity outcomes if you have new capital structure assumptions.

This provides the post-transaction intrinsic value of the combined business.

6

Use alternative post acquisition scenarios

To test how different deal terms or integration outcomes affect the combined entity:

• Duplicate the combined model to create scenarios, for example:

  • CombinedCo - Base Integration

  • CombinedCo - High Synergy

  • CombinedCo - Low Synergy

• In each model adjust:

  • Purchase price.

  • Funding mix and leverage.

  • Integration costs and synergy variables.

Compare the resulting valuations and cashflows across these models.

Check your work

• Buyer and Target branches are correctly populated and reconcile separately.

• Group level statements equal the sum of Buyer and Target plus adjustments.

• Acquisition funding flows and consideration are clearly represented.

• Goodwill or other acquisition accounting simplifications are consistent and documented.

• Post transaction valuation responds sensibly to changes in deal terms and synergies.

Troubleshooting

Target results appear to be double counted

Confirm you have not also included Target’s data in the Buyer branch, and that mapping is limited to the Target branch.

Group Balance Sheet does not balance

Check the acquisition entries, specifically the interaction between cash outflows, new debt or equity, and any goodwill asset created.

Post acquisition cash looks unrealistic

Recheck acquisition funding timing, any large one-off integration costs, and synergy assumptions.

Related articles

• Multi-Clinic Consolidation

• Opex Mapping

• Owner Permissions

• Variable Type