# Lecture 14: M&A Modeling – I — Practice Exercises Guide

## 📋 Overview
This guide provides step-by-step instructions for all practice exercises in Session 14. Work through each exercise in Excel using the provided CSV templates.

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## 🏋️ Exercise 1: Sources & Uses of Funds (30 min)

### Scenario: CloudNine Systems acquires ByteVerse Technologies

**Download:** `lecture-14-sources-uses.csv`

### Given Data
| Assumption | Value |
|---|---|
| ByteVerse Offer Price | ₹750 per share |
| ByteVerse Shares Outstanding | 2.0 Cr shares |
| ByteVerse Existing Debt | ₹500 Cr |
| ByteVerse Cash | ₹150 Cr |
| CloudNine Share Price | ₹1,200 |
| Consideration Mix | 50% Cash + 50% Stock |
| New Term Loan | ₹600 Cr |
| Advisory Fees | 0.75% of Transaction EV |
| Legal Fees | ₹20 Cr |
| Financing Fees | 2.0% of New Debt |

### Tasks
1. Calculate Equity Purchase Price
2. Split into Cash & Stock components
3. Calculate Transaction EV and all fees
4. Build Sources & Uses table
5. Verify balance

<details>
<summary>🔓 Click to Reveal Solution</summary>

**Step 1: Equity Purchase Price**
- ₹750 × 2.0 Cr = **₹1,500 Cr**

**Step 2: Cash & Stock Split**
- Cash = ₹1,500 × 50% = **₹750 Cr**
- Stock = ₹1,500 × 50% = **₹750 Cr**
- New Shares = ₹750 ÷ ₹1,200 = **0.625 Cr shares**

**Step 3: Transaction EV & Fees**
- Net Debt Assumed = ₹500 − ₹150 = **₹350 Cr**
- Transaction EV = ₹1,500 + ₹350 = **₹1,850 Cr**
- Advisory Fees = 0.75% × ₹1,850 = **₹13.875 Cr**
- Legal Fees = **₹20 Cr**
- Financing Fees = 2.0% × ₹600 = **₹12 Cr**
- Total Fees = **₹45.875 Cr**

**Sources & Uses Table:**

| Sources | ₹ Cr | Uses | ₹ Cr |
|---|---|---|---|
| New Term Loan | 600 | Equity Purchase Price | 1,500 |
| CloudNine Cash | 750 | Net Debt Assumed | 350 |
| New Equity Issued | 750 | Advisory Fees | 13.875 |
| | | Legal Fees | 20 |
| | | Financing Fees | 12 |
| **Total Sources** | **2,100** | **Total Uses** | **1,895.875** |

Excess cash = ₹204.125 Cr remains on combined balance sheet.

</details>

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## 🏋️ Exercise 2: Purchase Price Allocation (25 min)

**Download:** `lecture-14-ppa-template.csv`

### Given Data
| Item | Value (₹ Cr) |
|---|---|
| ByteVerse Book Equity | 400 |
| PP&E Write-up | 80 |
| Customer Relationships (12 years) | 120 |
| Technology/Patents (8 years) | 90 |
| Brand/Trade Name (20 years) | 60 |
| Tax Rate | 25.17% |

<details>
<summary>🔓 Click to Reveal Solution</summary>

**Step 1: Total Write-ups**
- PP&E: ₹80 + Customer: ₹120 + Tech: ₹90 + Brand: ₹60 = **₹350 Cr**

**Step 2: Deferred Tax Liability**
- DTL = 25.17% × ₹350 = **₹88.10 Cr**

**Step 3: Fair Value of Net Assets**
- FV Net Assets = ₹400 + ₹350 − ₹88.10 = **₹661.90 Cr**

**Step 4: Goodwill**
- Goodwill = ₹1,500 − ₹661.90 = **₹838.10 Cr**

**Step 5: Annual Amortization**
- Customer: ₹120 ÷ 12 = **₹10.0 Cr/yr**
- Technology: ₹90 ÷ 8 = **₹11.25 Cr/yr**
- Brand: ₹60 ÷ 20 = **₹3.0 Cr/yr**
- Total Annual Amortization = **₹24.25 Cr/yr**
- Additional Depreciation (PP&E): ₹80 ÷ 15 = **₹5.33 Cr/yr**

</details>

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## 🏋️ Exercise 3: Pro Forma Balance Sheet (30 min)

**Download:** `lecture-14-pro-forma-bs.csv`

Use the TechVista–DataCore case study data from the lecture.

<details>
<summary>🔓 Click to Reveal Solution</summary>

### Key Adjustments
- **Cash:** ₹1,500 + ₹200 − ₹792 − ₹37.30 = **₹870.70 Cr**
- **PP&E (FV):** ₹2,000 + ₹250 + ₹50 = **₹2,300 Cr**
- **Identified Intangibles:** ₹80 + ₹70 + ₹50 = **₹200 Cr**
- **Goodwill:** ₹800 + ₹812.93 = **₹1,612.93 Cr**
- **New Debt:** ₹400 + ₹300 + ₹120 = **₹820 Cr**
- **DTL:** **₹62.93 Cr**

### Key Ratios
- Pro Forma Debt/Equity: ₹2,820 / ₹2,970.70 = **0.95x**
- Pro Forma Debt/EBITDA: ₹2,820 / ₹1,080 = **2.61x**
- Standalone D/E was 0.73x → leverage increased

</details>

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## 🏋️ Exercise 4 (Advanced): Premium Sensitivity (20 min)

Vary premium from 0% to 60% in 10% increments. DataCore market price = ₹800/share.

<details>
<summary>🔓 Click to Reveal Solution</summary>

| Premium | Offer (₹) | Equity (₹ Cr) | Goodwill (₹ Cr) | D/E |
|---|---|---|---|---|
| 0% | 800 | 960 | 452.93 | 0.87x |
| 10% | 880 | 1,056 | 548.93 | 0.89x |
| 20% | 960 | 1,152 | 644.93 | 0.91x |
| 30% | 1,040 | 1,248 | 740.93 | 0.93x |
| 37.5% | 1,100 | 1,320 | 812.93 | 0.95x |
| 40% | 1,120 | 1,344 | 836.93 | 0.95x |
| 50% | 1,200 | 1,440 | 932.93 | 0.97x |
| 60% | 1,280 | 1,536 | 1,028.93 | 0.99x |

**Key Insight:** A 60% premium nearly doubles goodwill and pushes D/E close to 1.0x, constraining maximum viable premium.

</details>

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## ✅ Self-Assessment Rubric

| Criteria | Excellent | Good | Needs Work |
|---|---|---|---|
| Sources & Uses | Balanced, all items correct | Minor calculation errors | Missing items or unbalanced |
| PPA | All write-ups, DTL, goodwill correct | DTL calculation error | Missing intangibles |
| Pro Forma BS | Balances, all adjustments correct | Minor adjustment errors | BS doesn't balance |
| Sensitivity | Complete table with correct formulas | Partial table | No data table used |

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## 📚 Additional Resources
- **Rosenbaum & Pearl:** Investment Banking, Chapter 6
- **Pignataro:** Financial Modeling and Valuation, Chapter 8
- **Ind AS 103:** Business Combinations (available on MCA website)
- **SEBI SAST 2011:** Takeover regulations (available on SEBI website)