M&A modeling plays a vital role in evaluating the financial feasibility of combining companies. These models provide insights that guide strategic decision-making throughout the merger process.
What is a merger model? What are merger model assumptions? How are effective M&A models built? Find out in the article.
What is an M&A model?
An M&A model is a financial tool used in corporate finance to evaluate the potential impact of a merger or acquisition between two companies. The primary purpose of the merger model is to determine if the transaction will be financially beneficial for the acquiring company and its shareholders.
More precisely, it helps in assessing the target company’s value, forecasting the combined financial performance, estimating potential synergies, analyzing different financing options, and determining whether the deal will be accretive or dilutive to the acquiring company’s earnings per share (EPS).
This allows decision-makers to make informed choices about whether to proceed with the merger or acquisition, ensuring strategic alignment between the two companies.
An M&A model can also be called a merger model or acquisition model.
Additional read: You might also be interested in reading our comprehensive articles on financial modeling examples and company valuation methods.
Understanding the basics of M&A modeling
Merger and acquisition modeling involves several principles that are critical for evaluating the financial impacts of a merger or acquisition. Here are the key concepts:
- Synergy capture
It involves identifying financial synergy that arises from the merger, such as cost savings or increased revenue that would not be achievable independently. This often requires a thorough analysis of both companies’ operations to determine where efficiencies can be gained.
- Cost integration
It focuses on combining operations, systems, and processes to reduce expenses. This can involve consolidating facilities, reducing workforce redundancies, and streamlining administrative functions, which can lower operating costs and improve profitability.
- Revenue enhancement
It looks at ways to boost sales or market share through the merger, such as cross-selling products, expanding into new markets, and leveraging the combined strengths of both companies.
Accurate acquisition modeling requires detailed financial projections, including forecasting revenues, expenses, cash flows, and earnings, and involves analyzing different scenarios and assumptions to assess the potential impact on the single business entity.
Reliable models are crucial for conducting a thorough risk assessment, identifying rewards, determining the feasibility of achieving projected synergies, and ultimately deciding whether to proceed with the merger or acquisition.
Effective M&A modeling enables executives and board members to make informed decisions that align with strategic objectives, maximize shareholder value, and ensure a successful M&A integration.
Merger model assumptions
Assumptions are critical to the construction of a merger and acquisition model. They provide a structured framework to forecast future financial performance and the potential success of the deal.
Assumptions guide the model’s inputs and outputs, affecting everything from projected revenues and costs to synergies and valuation metrics. Without well-founded assumptions, the model’s projections could be highly inaccurate, leading to poor decision-making.
Let’s explore the assumptions and see how they impact various parts of the model like cash flow projections, valuation, and synergy calculations:
This assumption involves predicting how the combined company’s revenue will grow over time. It often takes into account historical growth rates, market trends, and the potential for new market expansion.
Cost synergies in M&A are the efficiencies and savings expected from the merger, such as reduced operational costs, shared resources, and economies of scale. The mergers and acquisitions model assumes a timeline for realizing these synergies and estimates the annual cost savings.
Revenue synergies refer to the increased revenue potential from the merger, such as cross-selling opportunities, new customer acquisition, and expanded market reach. Assumptions are made regarding the timing and magnitude of these additional revenues.
These are the one-time costs associated with integrating the two companies, including expenses related to merging IT systems, rebranding, severance for redundant positions, and legal and advisory fees.
These are assumptions about the overall economic impact, industry-specific trends, and competitive landscape. This includes interest rates, inflation rates, and market growth rates, which affect both the cost of capital and potential growth opportunities.
This includes the structure of the deal (cash, stock, or a combination), the interest rate on any debt used to finance the acquisition, and the terms of equity issuance.
Assumptions about the effective tax rate post-merger, which can significantly impact the company’s net income and cash flow projections.
Merger modeling assumptions significantly influence cash flow projections, valuation, and synergy calculations. For example, revenue growth rates impact projected revenues and cash inflows, affecting the top line of the cash flow statements. Cost synergies reduce operating expenses, leading to higher net incomes and improved valuations.
Integration costs, on the other hand, increase short-term cash outflows, reducing initial net cash flow. Market conditions affect the discount rate used in discounted cash flow (DCF) valuations, influencing the present value of future cash flows.
Financing assumptions impact interest expenses and overall net cash flow, while tax rate assumptions affect net income and available cash for reinvestment or distribution.
Steps to build an effective M&A model
Here’s a short step-by-step guide on how to build a merger model.
1. Making acquisition assumptions
When constructing merger models, it’s crucial to start with acquisition assumptions. If the buyer’s stock is undervalued, the buyer may prefer to use cash rather than equity for the acquisition to avoid diluting existing shareholders by issuing many new shares.
On the other hand, the target company might prefer receiving equity, especially if they believe it will appreciate more than cash. Reaching a mutually acceptable consideration is vital for finalizing the deal.
Key assumptions include:
- Purchase price. Determine the price to acquire the target company.
- New shares issued. Calculate the number of new shares to be issued as part of the consideration.
- Cash consideration. Value the cash component to be paid to the target.
- Synergies. Estimate the cost savings from combining the businesses.
- Timing for synergies. Predict when the synergies will be realized.
- Integration costs. Forecast the one-time expenses for integrating the two companies.
- Financial adjustments. Make necessary accounting-related adjustments.
2. Projecting financials
Next, make financial projections, similar to those in a regular DCF model. Analysts need to make assumptions about revenue growth, profit margins, fixed and variable costs, capital structure, capital expenditures, and all other accounts on the company’s financial statements.
This involves building a three-statement model, linking the income statement, balance sheets, and cash flow statement. This step should be done separately for both the target and the acquirer.
3. Valuing businesses
After completing the projections, perform a valuation of each business using a DCF analysis, comparable company analysis, and precedent transactions. This step involves several assumptions and requires a skilled analyst to ensure accurate and reliable valuations.
Key steps include:
- Comparable company analysis. Compare the target with similar companies.
- DCF model. Build the DCF model to estimate the intrinsic value.
- WACC calculation. Determine the weighted average cost of capital.
- Terminal value. Calculate the business’s terminal value.
4. Business combination and making pro forma adjustments
When combining the two companies, add the balance sheet items of the target to those of the acquirer. This process involves several accounting adjustments, such as calculating goodwill and adjusting for stock shares and options. This is also where synergy estimates are integrated.
Key assumptions include:
- Form of consideration. Decide on cash or shares.
- Purchase price allocation (PPA). Allocate the purchase price.
- Goodwill calculation. Determine goodwill from the acquisition. Note that goodwill occurs when the buyer pays more than the fair market value of the net tangible assets listed on the target company’s balance sheet.
- Accounting practice adjustments. Reconcile any differences in accounting practices.
- Synergies calculation. Include estimated synergies.
5. Conducting accretion/dilution analysis
The final step is to assess whether the acquisition will be accretive or dilutive to the buyer’s earnings per share (EPS). An accretive deal increases the buyer’s EPS, while a dilutive deal decreases it. This analysis helps the buyer understand the impact of the target’s financial performance on the combined company’s EPS.
Key assumptions include:
- New shares issued. Calculate the number of new shares issued.
- Earnings acquired. Estimate the earnings from the target.
- Synergy impact. Assess the effect of synergies on earnings.
Accretion and dilution
Let’s explore the merger model example through an accretion/dilution analysis to understand how the transaction impacts the EPS of the acquiring company.
Here are the proposed acquisition details:
Acquisition cost — $10,000
Method — 50% cash and 50% stock (using Company A’s stock price of $20 per share)
| Metric | Company A | Company B |
|---|---|---|
| Net income | $3,000 | $2,000 |
| Shares outstanding | 500 | 400 |
| Current EPS | $3,000 / 500 = $6.00 per share | $2,000 / 400 = $5.00 per share |
And this is how you calculate if the acquisition is accretive or dilutive:
| Steps | Description |
|---|---|
| 1. Calculate new shares issued |
|
| 2. Combined outstanding shares post-merger |
|
| 3. The combined net income of both companies |
|
| 4. Combined EPS |
|
| 5. Accretion/dilution analysis |
|
The calculated 11.17% increase in EPS indicates that the merger is accretive to Company A. It suggests that the merger is expected to increase EPS for the combined company, potentially enhancing shareholder value.
Note: In practice, additional factors such as synergies, integration costs, financing structure, and tax implications would be incorporated into a comprehensive merger model. Additionally, keep in mind that, typically, advanced financial modeling and mergers and acquisitions software are used for conducting detailed merger analysis.
Challenges in M&A modeling
Here are some common challenges faced when building out financial models for mergers or acquisitions:
Reliable and accurate data is critical for M&A models. However, obtaining detailed and precise financial information from the target company can be challenging, especially if the target company is private or has less stringent reporting requirements.
Solution. Establish data-sharing agreements with the target company to ensure transparency and access to accurate information.
Creating accurate financial projections involves numerous assumptions about future revenue, costs, and market conditions, which can be uncertain and subjective.
Solution. Use historical data and industry benchmarks to make assumptions. Conduct sensitivity analysis to understand the impact of different assumptions on the model outcomes and develop multiple scenarios to cover a range of potential states.
Different valuation methodologies (discounted cash flow, comparable company analysis, leveraged buyout model) can lead to different results, causing potential disagreements.
Solution. Use a combination of valuation techniques to get a comprehensive view of the target’s value. Engage independent valuation experts to provide an unbiased assessment.
Measuring the costs of debt, modeling the optimal debt financing structure, and forecasting interest rates can be difficult, especially in volatile economic conditions.
Solution. Use current market data and economic forecasts to model various interest rate scenarios and their impact on the company’s financial health.
Modeling the tax implications of the acquisition, including changes in tax rates, tax credits, and the impact of different ways of deal structuring, can be complex.
Solution. Engage tax advisors to assess the tax implications of the deal. Incorporate detailed tax modeling into the financial analysis to understand the net impact on the company’s financial position.
Accurately modeling the financial impact of post-merger integration activities, including synergies and integration costs, is complex and uncertain.
Solution. Develop detailed post-merger integration planning with specific financial targets. Monitor the integration process closely and update the financial model regularly to reflect actual performance against projections.
Key takeaways
- M&A modeling evaluates the financial impact of mergers and acquisitions, helping assess synergies, financial performance, and EPS accretion or dilution.
- Assumptions in acquisition models guide projections of revenue growth, cost synergies, integration costs, and market conditions, influencing decision-making accuracy.
- Using multiple valuation methods (e.g. DCF, comparable company analysis) ensures a comprehensive view of the target’s value, minimizing discrepancies.
- Challenges in M&A modeling include data accuracy, forecasting uncertainties, valuation discrepancies, debt structuring complexities, and intricate tax implications.
Building robust M&A models is crucial for ensuring informed decision-making and strategic alignment during mergers and acquisitions. These models provide a structured approach to assess financial feasibility, evaluate synergies, and mitigate integration risks, ultimately enhancing the chances of successful integration and value creation for stakeholders.
A career in private equity is highly desirable for many graduates who have dipped a toe in banking. In fact, dipping a toe is all they’ll get to do. The on-cycle hiring process for private equity typically begins a scant six months or so after candidates have left college.
Despite many having completed the requisite internships and summer placements, applicants often fear their resumes are too thin to make an impression, or that they lack the deals experience that PE funds might be looking for.
As with all things, it pays to be prepared. I recently discussed the on-cycle recruitment process with Sahil Chodhari, VP at H.I.G. Capital and Neal Monga, Principal at NMS Capital. They shared their top five tips for securing one of the most sought-after positions in finance.
1. Follow what’s worked before
There’s a reason private equity firms have largely followed the same recruiting process over the last decade. They understand what works well and don’t feel a need to recreate the wheel. The same applies to resumes.
“When we were analysts, we’d reach out to those who left for private equity and ask for example resumes and advice on the recruiting process,” says Monga. “It’s good to see a variety of resumes and to understand how recent private equity recruits positioned themselves while working at the same bank.”
Monga reveals that sample resumes can also be found online which can help applicants understand how best to structure the document and, crucially, what to focus on. “When we’re looking at resumes, it’s important to highlight the deals you spent the most time working on and very simply state the business model and transaction size. This is how interviewers decide which deal to focus on.”
Chodhari agrees that experience is the main talking point and education can often take a back seat. “For associate roles, I would keep your experience at the top. You should be speaking mostly to your banking years now.”
Monga also recommends having peers proofread your resume to weed out any errors or grammar issues.
2. Quality of deals, not quantity
In on-cycle recruitment, candidates are understandably worried that their relative lack of deals experience will be a hindrance for getting their first PE role.
“In banking, you might only have the opportunity to execute on equity follow-ons and IPOs. You can’t really control for that,” admits Monga. “If you are fortunate enough to work on a buy-side or sell-side transaction, you really don’t need to know more than two deals in detail. However, whether the transaction is an equity offering or a sell-side transaction, it’s important to illustrate that you understand the companies and their industries inside and out.”
“Don’t feel stressed,” Chodhari advises. Recruiters know you can’t have closed many deals by this point, he reveals. That said, it doesn’t hurt to talk to your company and ask to work on some sell-side, M&A transactions.
Similarly, Monga advises speaking to the wider deal team about what happened at the start or middle of the deal, “the parts you missed before you joined as an analyst.”
“You might also want to tailor your resume depending on the type of firm you’re looking at. For a larger size firm, it’s good to show them larger size deals – if you’ve got that experience,” Chodhari adds.
3. A little personality goes a long way
While your resume should be short and sweet, that doesn’t mean you should erase your personality altogether. Recruiters want to have something to interest them and talk about when they’re speaking to multiple applicants in a day.
“If you have a hobby, show some personality,” says Chodhari. “A lot of the time it does come down to culture and fit when people’s experience is very similar.”
4. Research and preparation
There are two key points to prepare for – the interview and the modelling test. Before candidates begin to think about how they present themselves, they need to think about how they fit into the firm they’ve approached. That includes understanding the firm’s investment principles and deal activity.
“Look at the firm’s website and review their recent deals. You want to build the story of why you’re interested in that firm specifically,” advises Monga. The intense nature of the recruitment process and volume of interviews requires practice and preparation.
“It’s helpful to work with other analysts and complete mock interviews where you practice telling your ‘story’, walking through your deals, and responding to others,” he says.
“A helpful little trick, at the end of each interview, ask the interviewer why they joined the firm. By the end of the third or fourth interview, you’ll have a long list of reasons on why other people joined that specific firm. If any of these reasons also resonate with you, then you can incorporate them into your interviews as you move forward in the process.”
When it comes to the modelling tests, practice is key. There are certain common aspects, such as an LBO (leveraged buyout) model, that Chodhari says are “table stakes.”
“You can tell who’s polished and who’s trying to wing it,” he explains. “Nine times out of 10 the polished person will get further.”
5. Practice makes perfect
Securing an interview is really when the rubber hits the road. Despite the tight timelines, Chodhari says that not preparing is “100% not the way to go.”
As with the resumes, it doesn’t hurt to be a little formulaic. “Make sure you have your story down pat. Why did you choose your college, your major, your employer? Why do you want to do private equity? Be crisp and articulate, but not robotic.”
According to Monga, it’s also important to outline your deals and practice walking through them from an investor perspective. “Be able to comfortably walk the interviewer through the industry trends, investment highlights, key risks and diligence areas, and your viewpoint on whether this will be a good investment for the ultimate buyer,” he says.
“Being able to show you can think critically is the most important part of the associate job.”
The final word
Both Monga and Chodhari emphasize the need to say “Thank you” – both in person and in a follow-up email.
“Make sure to send your email within 24 hours. You don’t need to overcomplicate it, just one or two lines,” Monga says.
“But if you don’t do it, and others do, you’ll be at a disadvantage”.
While you don’t necessarily need a formal mergers acquisitions education to work in M&A, investing in specialized courses can significantly enhance your capabilities. These courses offer essential skills, from deal structuring and valuation to negotiations and post-merger integration, providing a comprehensive understanding of the processes involved in corporate transactions.
This article aims to explain why, how, and where to pursue a certificate in mergers and acquisitions. It also provides a review of the top eight M&A training courses.
Why pursue M&A certification?
M&A training is a strategic investment that can significantly impact your professional growth and success in the competitive field of mergers and acquisitions. Here are more details on its benefits:
Obtaining an M&A certification equips you with specialized skills and knowledge. You gain a deep insight into the complex processes involved in corporate transactions, which enhances your expertise and makes you more proficient in handling such deals.
An M&A certificate boosts your credibility in the industry. It demonstrates to employers, clients, and peers that you have met a recognized standard of knowledge and competence in the field. This can distinguish you from other professionals and make you a more attractive candidate for various roles.
Obtaining an M&A certification can be a significant factor for promotions or transitioning into more senior roles. Companies often look for certified professionals when hiring for positions such as M&A advisors, investment bankers, corporate development managers, and financial analysts.
Certified M&A professionals often enjoy higher M&A salaries. Employers are willing to pay a premium for individuals who can add value to their M&A activities, making certification a worthwhile investment in your career.
Many M&A courses offer opportunities to connect with industry professionals, which can be invaluable for career growth. Additionally, programs often host networking events like in-person M&A seminars, advanced workshops, and lectures, allowing you to meet influential figures in the M&A field.
M&A programs often include practical case studies, simulations, and real-world projects. This hands-on experience ensures that you can apply theoretical knowledge in real situations, making you more effective in your role and giving you the confidence to handle real M&A transactions.
Additional read: Check out the article mergers and acquisitions definition to quickly grasp how companies combine and acquire each other. You might also be interested in the article describing the best books for mergers and acquisitions.
Criteria for choosing the best M&A certification programs
Here are key factors to consider when selecting a mergers and acquisitions certificate program:
Ensure the program has an accredited M&A certification by a recognized organization and a good industry reputation.
Review the syllabus to confirm it covers essential M&A topics like deal structuring, valuation, due diligence, negotiation, and integration, and includes practical case studies.
Investigate the qualifications and experience of the instructors, prioritizing programs taught by industry experts with substantial M&A experience.
Consider whether the program is offered online, in-person, or in a hybrid format, and ensure the schedule fits your availability and learning style.
Compare the costs of different programs and what is included in the fee, and investigate if there are scholarships, financial aid, or payment plans available.
To obtain the best M&A certification, ensure it’s recognized and valued in the industry. Look for testimonials or course reviews from past participants regarding the program’s impact on their careers.
Consider the length of the program and the time commitment required, making sure it aligns with your personal and professional schedule.
Top eight M&A training courses
Here’s a short list of the best M&A courses that the 2024 M&A training market offers:
- New York Institute of Finance M&A Professional Certificate
- Kellogg Executive Education: Creating value through strategic acquisitions and alliances
- Corporate Finance Institute M&A Modeling Course
- Columbia Business School Mergers and Acquisitions Course
- CIMA Mergers and Acquisitions Masters Course
- Certified Mergers & Acquisitions Professional Program
- International Mergers & Acquisitions Expert (IM&A)
- Stanford Business Mergers and Acquisitions Course
Now, let’s explore each M&A course in more depth.
1. New York Institute of Finance M&A Professional Certificate
Format: online (self-paced), virtual (live), in-person (NY campus)
Cost: $1,550 for online, $3499 for in-person and virtual
Duration: 40 hours for online and 5 hours for in-person/virtual
More info: link
This mergers and acquisitions training provides a thorough exploration of the M&A industry. It covers every phase of transactions, from pre-deal strategies to post-merger integration. Participants will earn 35 CPE credits upon completion.
Prerequisite knowledge for enrollment includes basic MS Excel skills, familiarity with corporate finance principles and valuation, and an understanding of financial markets and instruments.
Participants will learn to integrate four key topics, addressing both qualitative and quantitative aspects of M&A: mergers and acquisitions theories, accounting practices in M&A, the significance of free cash flow in decision-making, and techniques for structuring M&A deals.
Best for: financial analysts and managers, bankers, strategic planning professionals, corporate finance lawyers, and market regulators looking to enhance their expertise in M&A transactions.
2. Kellogg Executive Education: Creating value through strategic acquisitions and alliances
Format: in-person
Cost: $10,700 (includes lodging and meals)
Duration: 5 days
More info: link
The course combines academic theory with practical application. Led by renowned faculty in finance, accounting, management, and organizational change, this interdisciplinary program guides participants through the entire M&A process. It covers strategic fit assessment, market trends evaluation, financing decisions, and the development of customized post-merger integration plans.
Participants will also explore topics such as valuation, financial analysis, negotiation strategies, international M&A considerations, and best practices for effective integration.
Key benefits include learning to determine shareholder value, identifying strategic synergies, devising acquisition strategies, and executing high-impact integration plans. The course also offers opportunities to apply newly acquired skills through practices like a simulation of a deal.
Best for: mid- and senior-level executives and managers involved in acquisition and alliance activities, as well as those in corporate development, planning, and finance roles.
3. Corporate Finance Institute M&A Modeling Course
Format: online
Cost: the course is available through an annual subscription that includes 200+ online courses — $298 for self-study and $508 for expert guidance
Duration: 8 hours
More info: link
This advanced financial modeling course provides comprehensive training in creating detailed models to analyze M&A transactions thoroughly. Participants in this course will learn how to structure M&A models efficiently, integrating both the acquirer and target entities into comprehensive pro forma models.
Key topics include setting up essential assumptions and drivers, calculating adjustments for post-transaction balance sheets, and conducting sensitivity analysis to evaluate the impact of various assumptions on transaction outcomes.
Through video lectures, participants learn the complexities of M&A modeling, including cash flow analysis, purchase price allocation, and accretion/dilution analysis. The course emphasizes understanding the strategic implications of M&A transactions, using a case study approach focused on Online Company Inc’s acquisition of Brick ‘n’ Mortar Co.
Best for: accountants, financial managers, and professionals in investment banking, corporate development, private equity, and corporate finance sectors.
4. Columbia Business School Mergers and Acquisitions Course
Format: online
Cost: $3,700
Duration: 9 weeks, 4-6 hours per week
More info: link
In this mergers and acquisitions certification program, participants learn a comprehensive framework covering both offensive and defensive strategies in M&A. The course provides a thorough exploration of corporate strategy formulation, execution tactics, legal considerations, and risk management.
The course better suits those who have experience in corporate finance, capital markets, or investment management. This M&A training includes modules devoted to strategic and practical considerations in M&A, merger agreements and sell-side dynamics, purchase agreements, valuation techniques, and deal math.
Prospective learners can expect interactive elements such as live sessions with faculty, case studies, assignments, small group projects, peer discussions, feedback sessions, and real-world industry examples featuring financial documents.
The curriculum focuses on mastering the principles and mechanics of deal documentation, exploring diverse transaction structures, and evaluating whether the parties involved derived the “benefit of the bargain”.
Participants will also gain insights into the critical role of valuation throughout a real-world merger process, exploring different valuation methods and the mathematical foundations underlying deal decisions.
Best for: anyone interested in investment banking, consulting, equity research, corporate development, corporate lending, strategic planning, private equity, and leveraged finance.
5. CIMA Mergers and Acquisitions Masters Course
Format: online
Cost: £55 – £65
Duration: N/A
More info: link
CIMA (the Chartered Institute of Management Accountants) offers highly-regarded certifications in management accounting. This mergers and acquisitions program covers the essential aspects of M&A activities, including the motivations behind acquisitions, factors influencing pricing decisions, the value proposition of mergers, and the intricacies of bidding and negotiation processes.
Participants will learn acquisition strategies, business valuation techniques, and the various types of mergers such as statutory, subsidiary, and horizontal mergers. Practical, hands-on exercises with real-world examples are integrated throughout the course for thorough understanding and practical application.
Upon successful completion of the program, participants will be able to identify the purposes of M&A activities, assess risks associated with poorly managed transactions, determine valuations for a target company, navigate the bidding and acquisition processes, and implement post-acquisition strategies to achieve expected value.
Best for: management accountants, controllers, CFOs, finance vice presidents, and finance directors.
6. Certified Mergers & Acquisitions Professional Program
Format: live via Zoom
Cost: $2,950 (Price includes electronic program materials, templates and examples, and access to the Learning Management System. Special pricing is available for multiple participants from the same firm).
Duration: 6 weeks
More info: link
The Certified M&A Professional (CM&AP) Certificate Program, developed by the Coles College M&A Academy, is a dedicated course specifically tailored for industry practitioners working with private companies in the middle market and business owners preparing for acquisition or sale.
Participants start with sessions covering industry analysis, shareholder value maximization, and building business relationships. The program then explores creating and protecting value through financial analysis. This includes examining the quality of earnings, interpreting financial statements, understanding cash flow, and preparing financial projections.
Next, the course looks at transaction valuation, focusing on value drivers, various valuation methods, and a DCF case study. The M&A process is thoroughly explored, addressing how to manage a sale, multiple approaches to sale, and the auction process and ESOP. Lastly, the program covers valuation and deal finance, applying valuation concepts, and dissecting the anatomy of deal finance.
Best for: M&A intermediaries serving private companies in the middle market and business owners preparing for an acquisition or sale.
7. Certified Merger and Acquisition Advisor (CM&AA)
Format: onsite and virtual live
Cost: $3,290 online, $4,390 virtual live, $5,490 onsite
Duration: 30 hours onsite and 60 hours online
More info: link
The program covers the entire M&A process, including strategy, valuation, execution, and post-merger integration (PMI). Participants will gain lifelong access to updated online course content, hard copies of materials (for onsite programs), and a global network of experts. The program also includes 10 hours of continued professional development bi-annually.
The course is divided into four modules, including the essentials of M&A, due diligence, valuation, and post-merger integration. These modules cover the full spectrum of the M&A process, addressing challenges and opportunities presented by new technology, cross-border deals, corporate inversions, earn-outs, spin-offs, and more.
Upon completion, participants receive the IM&A Charter, the most internationally recognized designation in the field of M&A.
Best for: mid-management to senior executives, directors, board leaders, advisers, investment bankers, transactional lawyers, and private equity investors. Prerequisites include an academic degree or professional designations such as CPA, CFA, or CAIA.
8. Stanford Business Mergers and Acquisitions Course
Format: in-person
Cost: $15,000
Duration: one week
More info: link
The course offers an in-depth exploration of the entire M&A process through an interdisciplinary curriculum and a week-long team simulation project. This program blends lectures, case studies, class discussions, practical examples, hands-on learning, and guest speaker visits to provide insights and tools for formulating and executing successful M&A strategies.
The course covers essential aspects of mergers, including target selection, valuation and pricing models, deal design, negotiation strategies, accounting and tax planning, and post-merger integration. The curriculum is structured to follow the M&A process sequentially, ensuring a comprehensive understanding.
Participants will enhance their financial valuation skills, formulate M&A strategies, and develop critical competencies for post-merger integration and performance. They will also increase their awareness of common pitfalls in failed M&As.
Best for: senior-level executives and entrepreneurs with at least 10 years of management experience, those in business development, corporate development, finance, and strategic planning, CEOs, general managers, general counsels, and bankers.
Key takeaways
- M&A certification courses are a strategic investment for professionals aiming to advance their careers in finance and corporate sectors by gaining specialized skills in deal structuring, valuation, negotiation, and integration.
- Certification enhances professional credibility by showing expertise in M&A concepts and techniques, making individuals more appealing candidates for senior roles like M&A advisors and investment bankers.
- Certified professionals often earn higher salaries because of their specialized knowledge and ability to add significant value to M&A activities within organizations.
- Select an M&A certification program based on accreditation, comprehensive curriculum, experienced faculty, flexible learning formats, cost-effectiveness, industry recognition, manageable duration, and positive participant reviews.
Investing in M&A certification courses can transform your career in mergers and acquisitions by equipping you with essential skills and knowledge, so you can confidently navigate complex transactions and pursue senior roles in finance and corporate sectors.
Cyber risk remains a top concern for modern CEOs who see it as a potential disruptor to their business in the next 12 months. This becomes particularly significant given the global anticipation of an M&A rebound this year: dealmakers would not want to risk their long-awaited strategic moves due to the poor cybersecurity posture of a target.
In this article, we focus on the role of M&A cybersecurity during due diligence, explain how cyber risk assessment can impact the valuation and negotiation process, and explore where cybersecurity risks intersect with other M&A risks.
The role of cybersecurity in M&A
According to Gartner, 62% of IT and business leaders believe that their companies face substantial cybersecurity risks when acquiring new businesses, with cyber risk being their primary concern among other post-merger challenges.
The role of cybersecurity in mergers and acquisitions indeed shouldn’t be underestimated. Failing to identify and address security problems and risks in M&A in the early stages of a deal can lead to serious financial and reputational consequences for both the acquiring and target companies. Here are a few cases:
TalkTalk, a U.K.-based telecom company, faced a £400,000 fine after a cyber threat actor accessed a customer database it acquired, resulting in a significant data breach.
The valuation of Verizon’s acquisition of Yahoo’s internet business dropped by $350 million following Yahoo’s disclosure of three major data breaches compromising over one billion customer accounts.
A massive data breach in Starwood’s reservation system exposed nearly 400 million guest records and resulted in a $123 million GDPR fine for Marriott due to inadequate data privacy measures during the acquisition process.
In mergers and acquisitions, the focus has traditionally been on areas like finance, legal, and operations, with cybersecurity due diligence often overlooked. However, it’s becoming increasingly clear that organizations considering M&A transactions could benefit from a more dedicated security vulnerability assessment.
CEOs and M&A decision-makers must approach the question of cybersecurity proactively, as a potential data breach can pose a substantial threat to critical business assets, such as intellectual property or customer information.
This risk assessment shouldn’t be a one-time event but rather an ongoing process. That’s why it’s crucial to assess acquisition risks before integration. It’ll help organizations mitigate potential cyber incidents.
Cybersecurity due diligence in the M&A process
About 60% of companies involved in M&A activity consider cybersecurity posture a crucial factor in the due diligence process.
Let’s explore the key components that should be included in mergers and acquisitions cybersecurity due diligence. They will help uncover any security issues and liabilities, assess the costs for remediation, and minimize business disruptions:
- Data security and regulatory compliance
Conduct a comprehensive security audit and assess the target company’s compliance standards with data security and privacy regulations such as GDPR, CCPA, HIPAA, etc. Review data protection policies and procedures to identify any gaps or non-compliance issues.
- Cybersecurity infrastructure
Evaluate the effectiveness of the target company’s cybersecurity infrastructure, including firewalls, intrusion detection/prevention systems, encryption methods, managed security services, and access controls. Identify any weaknesses or vulnerabilities that could be exploited by cyberattacks.
- Incident response and recovery capabilities
Review the target’s incident response plan and procedures to assess their readiness to detect, respond to, and recover from cybersecurity incidents. Evaluate the effectiveness of their incident detection and response capabilities, including monitoring tools and protocols.
- Third-party and vendor risk management
Evaluate the target firm’s relationships with third-party vendors and assess the cybersecurity concerns associated with these partnerships. Review vendor contracts, security assessments, and incident response plans to identify potential vulnerabilities and dependencies.
- Employee training and awareness
Assess the target’s cybersecurity training and awareness programs to ensure that employees are educated about cybersecurity best practices and aware of cybercrime within the evolving threat landscape. Evaluate the effectiveness of these programs in reducing human error and mitigating insider threats.
- IT systems integration risks
Evaluate the potential cybersecurity risks associated with integrating the target’s technology systems and infrastructure with those of the buyer. Ensure secure data migration. Identify any compatibility issues, security gaps, or vulnerabilities that could arise during the integration process.
Impact of cybersecurity on valuation and negotiations
Cybersecurity due diligence findings or hidden cybersecurity issues that prove a target’s poor cybersecurity posture can immensely impact the deal valuation and the negotiation process.
We discuss the possible effects below.
Purchase price reduction
If a cybersecurity team of an acquiring company finds out that the cybersecurity processes of a target company have certain vulnerabilities, this can be reflected in the purchase price. In this case, the potential costs for addressing identified issues, such as system upgrades, hiring security experts, or implementing new protocols, might be factored into a purchase price.
There are two common ways in which purchase price can be impacted:
- Direct costs
Suppose the buyer’s M&A security due diligence team discovers the target has outdated security infrastructure. In that case, it may reduce the purchase price to account for the investment required to bring systems up to standard.
- Liabilities and potential fines
Suppose a due diligence team reveals that a target company’s security teams provide services that are non-compliant with certain data protection regulations, such as HIPAA or GDPR. In that case, the buyer might adjust the purchase price to mitigate potential future liabilities.
Future earnings adjustments
If an acquiring company discovers certain cyber risks post-acquisition, it can necessitate adjustments in future earnings projections. This is because a buyer might face unexpected expenses related to the improvement of current security measures network, legal liabilities, or recovery from data breaches, which can all detract from the anticipated financial performance.
This is how future earnings adjustments can be reflected:
- Revenue impact
A company’s future earnings might be adjusted if cybersecurity issues are likely to affect customer trust and, as a result, revenue. For instance, if a breach becomes public, it can lead to a loss of clients or contracts, reducing the company’s future revenue projections.
- Operational disruptions
The potential risks of operational disruptions due to cybersecurity attacks (for example, ransomware) can affect a company’s valuation. If a target company’s operations are vulnerable to cyberattacks, this risk can lead to an adjustment in the expected cash flows, thereby lowering the overall valuation.
Revision of negotiation terms
The disclosure of certain cybersecurity vulnerabilities can lead to the two companies revising the deal’s negotiation terms. This includes renegotiating certain aspects to protect the buyer from potential losses or liabilities related to undisclosed cybersecurity issues.
Additional read: Learn more about the difference between the buy-side vs. sell-side of M&A in our dedicated article.
The most common items of the negotiation process that are impacted by the cybersecurity risks disclosure are the following:
- Escrow and holdbacks
To mitigate risks, part of the purchase price might be held in escrow or subject to holdbacks, depending on the resolution of identified cybersecurity issues.
- Representations and warranties
Buyers may require sellers to provide warranties against future cyber incidents or breaches that occurred before the acquisition. For instance, this can include warranties that the company complies with relevant cybersecurity regulations and standards.
Brand and reputation damage
Disclosed cybersecurity issues can harm the brand and reputation of the acquired company, and potentially the acquiring company as well. This damage can lead to a loss of customer trust and loyalty, negatively affecting market position and revenue, and may require significant effort and resources to rebuild.
Among the ways of how cybersecurity issues can affect the organization’s reputation are the following:
- Public perception
A company’s reputation regarding cybersecurity can influence its market value. Companies known for strong cybersecurity practices may enjoy a premium valuation, while those with poor records may face discounts.
- Customer trust
Disclosure of certain cybersecurity problems may also undermine the level of trust customers have in a company’s ability of their data protection in the mergers and acquisitions process. As a result, this can significantly affect customer retention and acquisition, directly impacting revenue and valuation.
Comparing cybersecurity risks with other M&A due diligence factors
Now, let’s briefly review how M&A cybersecurity concerns are similar and different from other types of risks in mergers and acquisitions, and find out whether they intersect.
As seen from the table, cybersecurity risks are often either the reason for other M&A risks or their result. This only highlights the importance of timely and accurately addressing cybersecurity for M&A success.
Key takeaways
- Poor cybersecurity practices in M&A can lead to significant financial losses and reputational damage for both parties involved.
- Cybersecurity due diligence should include the assessment of data security, compliance, cybersecurity infrastructure, incident response, recovery capabilities, third-party and vendor risk management, employee training and awareness, and IT systems integration risks.
- The main effects of cybersecurity issues on valuation and negotiation processes are the reduction of purchase price, future earning adjustments, revision of negotiation terms, and reputational damage.
- Cybersecurity issues during M&A can also be a reason or result for other M&A risks, such as financial, operational, legal, and strategic.
On-cycle recruitment in private equity is sometimes compared to a hiring gold rush. Some private equity firms launch their associate recruiting processes with very little notice, so candidates need to make sure they’re as prepared as possible for whenever the call might come.
Why do private equity firms recruit like this? Simply because they can. They know what they want and they’re not going to waste much time getting it. Candidates are highly motivated with half of those working in banking looking for a role in private equity, and the money on offer – over $300,000 in some cases – is certainly a sweetener.
It doesn’t always work out. According to Business Insider, 2022’s early on-cycle kick-off attracted too many unprepared candidates. There was a second recruitment round in early 2023, but many candidates would still be less than a year into their careers at that point. 2024’s on-cycle process is the earliest yet, with a number of firms kicking off before analysts started training.
I recently spoke to Matthew Moore and Lane Merlo, both Managing Directors at recruitment firm SearchOne Advisors, to get their advice on how to be successful in on-cycle recruitment. These are some of their top tips for candidates looking for a first role in private equity.
1. Polish your resume, but don’t go over-the-top
Recruiters and their clients often see your resume before they ever hear you speak. While it may be tempting to add something creative or unusual to stand out, Moore says this is not the place to do so.
“Don’t stray from the norm by adding a photo of yourself or non-traditional formatting. Keep it simple so people know where to find the information they’re looking for,” he says. “But I do like it when candidates show their personality a bit with a few lines at the bottom. It gives us something to talk about in interviews.”
Moore also warns against omitting your college GPA. “If I don’t see a GPA on a resume, I assume it’s very bad, but sometimes it’s not that bad and becomes a talking point when it really doesn’t need to be a talking point,” he explains.
When it comes to your career experience, Moore warns against trying to impress potential employers by including high-value deals where you only had a minor role. “We’re more interested in what you did on the deal as opposed to the name of the company. If you didn’t play a big part on a deal, don’t put it on as you won’t be able to speak to it.”
Finally, make sure not to include any sensitive non-public information. “You wouldn’t want to get in hot water with your current employer or end up disclosing something to an investment firm that you shouldn’t,” says Moore.
2. Be proactive and polite
The typical process in on-cycle recruitment is for recruiters to reach out to potential candidates. But there’s nothing stopping you reaching out to them, too.
According to Merlo, this doesn’t just mean sending an initial email, but also making sure that you’re performing some basic ‘contact hygiene’.
“Make sure we’ve got the right contact information for you. Especially if you have a really common name, make sure we have the right work email address if that’s what you choose to use,” she explains. “Also let us know what firms you’re interested in so we can update you when that company is recruiting.”
And it doesn’t hurt to stay in touch – just don’t let that become pestering. “You don’t need to send a recruiter an updated resume every couple of days. Once we have all your information, we’ll keep you in the loop,” says Merlo.
If you do secure an interview, remember to send a thank you note. It’s not just polite, it can be a deal breaker: “We’ve had candidates do well in an interview and not send a thank you note – they don’t move on to the next round as a result,” Moore reveals.
3. Presentation is everything
The rise in remote working has upended social norms around how to present ourselves at work. People are used to showing their home while on video calls, which has led to a more casual approach when choosing what to wear.
But while it can feel odd wearing a suit to join a Zoom call, it’s important to present yourself in a professional manner.
“You need to dress appropriately,” explains Moore. “And if you have to be in your bedroom, make sure that your bed is made behind you. There are simple things that sometimes people don’t think about.”
This extends to your electronic impression. Moore notes that if you’re still using your college email address, you may lose access at some point after graduating. “You want to be aware of the optics of your email as well. ‘John.Smith@gmail.com’ is better than ‘surferdude13@aol.com’,” he says.
4. Model candidate
A significant part of the interview process for many firms is a modeling exam. Given the short notice period for on-cycle recruitment, you need to be constantly prepared to sit the test.
“You wouldn’t believe the pass rates these days. They are lower than in the past,” says Merlo. “Those who are passing have practiced, so practice, practice, practice.”
And don’t expect to have access to add-ins you may be used to, e.g. Macabacus, because they probably won’t be available on the day of the exam.
5. Do your homework
Preparation isn’t limited to showing what you can do. Knowing who you want to work for and why is just as important. You need to research the company interviewing you. Be prepared to speak to the firm’s investment strategy, the areas they specialize in, and have good questions for them.
“Make sure to come prepared,” says Merlo. “Make sure you have a good answer as to why you want to work, not only in private equity, but at that particular firm. Not knowing anything about the firm interviewing you is disrespectful and an easy reason to cut you from the process.”
And don’t panic if you miss the bus
While the timing and pace of on-cycle recruiting grabs lots of headlines, it’s important to know there are other avenues to ending up in private equity.
Some large and even smaller firms are recruiting associates up to two years in advance; however, many firms, especially middle market, growth, venture, and hedge funds are hiring six to twelve months in advance. This includes some larger firms as well who prefer to interview candidates with a year of work experience.
“We’re filling lots of roles ‘just in time’, and some analysts are going through the on-cycle process as second years,” says Moore. “There are a lot of options from a timing perspective.”
A recent Nonprofits Trends Report conducted by Salesforce shows that modern nonprofit organizations face many challenges — from difficulties with raising awareness of the nonprofit’s mission among the community to hurdles with controlling expenses and dealing with increased demand for the organization’s services.
Luckily, most of those challenges can be solved through mergers and acquisitions as a move for strategic growth.
This article helps board members, professional advisors, financial institutions, and other key nonprofit players to learn more about nonprofit mergers and acquisitions. Read on to explore what nonprofits achieve with an M&A deal, what factors nonprofit leaders should consider before entering the deal, and what to include in an M&A nonprofit checklist.
What is a nonprofit merger and acquisition?
Nonprofit mergers and acquisitions refer to the process through which two or more nonprofit organizations combine their operations, assets, and missions to achieve better efficiency, enhance their impact, or address certain financial challenges.
In nonprofit mergers, two nonprofit entities unite to form a new legal entity and operate under one legal name. Two nonprofit organizations combine their assets, liabilities, and programs. For instance, a merger occurs when two health-focused nonprofits merge to offer a comprehensive range of services under one entity, reducing administrative costs and enhancing patient care.
In nonprofit acquisitions, one nonprofit organization takes control of another. The acquiring organization absorbs the assets, liabilities, and programs of the acquired entity, which often ceases to exist as a separate organization, leaving its assets operating under the surviving entity. For instance, an acquisition takes place when a large educational nonprofit acquires a smaller one to expand its reach and incorporate specialized programs into its existing offerings.
Note: Sometimes when nonprofit leaders see an opportunity for collaboration, considering such options as joint ventures, partnerships, or simple contracts instead of a merger or acquisition might be enough.
The difference between the for-profit and nonprofit M&A
Let’s now take a look at how corporate M&A is different from M&A in the nonprofit sector. The main difference criteria are described in the table below.
| Criteria | For-profit entities | Nonprofit entities |
|---|---|---|
| Primary objective | Financial benefit and increased shareholder value | Enhancement of mission effectiveness and community impact |
| Key stakeholders | Shareholders and investors | Board members, donors, beneficiaries, and the community |
| Regulatory environment | Subject to securities regulations and antitrust laws | Subject to charitable organization regulations and Internal Revenue Service (IRS) requirements |
| Valuation approach | Based on financial metrics such as revenue, profit, EBITDA, and market share | Based on mission alignment, program effectiveness, and community impact |
| Funding | Through private equity, bank loans, stock options, and bonds | Through grants, donations, and philanthropic contributions |
| Impact on employees | Focus on cost synergies, which may lead to layoffs and restructuring | Focus on mission synergies, with an emphasis on retaining staff and volunteers for continuity |
Benefits of nonprofit mergers
Merging nonprofit organizations can achieve certain benefits through the deal, such as:
- Increased efficiency
Just like the combination of two for-profit organizations, nonprofit mergers enable nonprofit leaders to reduce redundancies and overhead costs by consolidating administrative functions and sharing office space. Additionally, combining resources such as staff, technology, and facilities can help to deliver services more efficiently.
- Improved financial position
Merging entities can benefit from a broader base of funding sources, reducing dependency on a single revenue stream. This way, a combined organization may gain financial stability, making it more attractive to donors and grantmakers.
- Enhanced services
A nonprofit merger of two organizations can extend the geographic reach and impact of services, allowing nonprofits to serve a larger or more diverse population. Additionally, by combining expertise and best practices, the acquiring entity and target organization can enhance the quality of programs and services offered.
- Mission expansion
In the nonprofit context, when two separate entities have complementary missions, their integration can be a strategic growth opportunity, which might help with a nonprofit’s mission expansion. This results in enhancing the overall impact and effectiveness of nonprofit work and helps make a bigger difference in their communities.
8 considerations for merging nonprofits
Now, let’s explore the main factors both organizations should consider in the nonprofit integration process.
1. Mission alignment
Before initiating the M&A process steps, both nonprofits should ensure they have similar missions and values to create a unified and effective new organization. A key objective behind the merger should be the strengthening of the shared mission rather than its dilution.
Thus, aligning missions helps avoid conflicts and confusion, ensuring that the merged entity can work towards common goals.
2. Complementary strengths
The next step is to identify how each organization’s unique strengths, such as expertise, resources, and networks, can be combined to enhance overall capabilities.
By leveraging complementary strengths, the merged entity can provide a broader range of services and improve its impact. This synergy can lead to innovation and more effective problem-solving.
3. Financial health
Though financial synergies aren’t the primary focus of mergers and acquisitions for nonprofits, it’s still important for both organizations to evaluate their financial stability and health to ensure the merged entity can sustain operations and fulfill its mission. This is to ensure that the potential merger won’t become a bailout but rather improve the financial health of the new entity.
4. Leadership and culture
For a new entity to stay efficient and enhance its mission’s delivery to the community, both organizations should thoroughly assess the compatibility of leadership styles, management practices, and organizational cultures.
Effective leadership is crucial for guiding the organization through the merger process and establishing a positive and cohesive work environment. Cultural alignment helps maintain staff morale and engagement during the transition.
5. Risk assessment
Identify and analyze potential risks associated with the merger, including financial, operational, legal, and reputational risks. A comprehensive risk assessment ensures that the merger process is as smooth and secure as possible.
Based on the risk assessment results, both nonprofits should develop mitigation strategies for identified risks to navigate potential challenges effectively.
6. Long-term strategy
An acquired organization and the acquirer should ensure that they align on a unified long-term strategy.
This involves setting clear goals, defining success metrics, and creating a roadmap for future growth. A shared vision for the future helps in maintaining focus and direction for the merged entity.
7. Stakeholder support
For a successful nonprofit consolidation, both organizations should also ensure the support of key stakeholders, including board members, staff, donors, beneficiaries, and other key nonprofit players.
Engaging stakeholders early and transparently helps build trust and gain buy-in. Their support is critical for the smooth execution and future success of the merger.
8. Due diligence
Just like in the for-profit M&A, the due diligence process remains one of the most critical parts of the nonprofit M&A integration.
Both organizations should conduct a thorough M&A due diligence to uncover any legal, financial, or operational issues that could affect the merger. This includes reviewing contracts, compliance with regulations, and organizational structures. Addressing these issues proactively ensures seamless integration and helps to avoid potential legal, financial, or tax consequences.
Legal and regulatory considerations for merging nonprofits
Reasonably, there are certain legal considerations and legal obligations that merging nonprofits should consider (and address) when entering the deal. Let’s briefly review the main ones.
Board approval
Nonprofits must secure approval from their board of directors before proceeding with an M&A transaction. This ensures that the decision aligns with the organization’s mission and the interests of its stakeholders.
- State laws
Nonprofits must comply with state-specific regulations governing mergers and acquisitions in the nonprofit sector. This may include filing certain documents, obtaining approval from the state attorney general, and adhering to specific procedures to ensure the transaction is legally sound.
- Asset transfer and restrictions
Nonprofits must carefully manage the transfer of charitable assets to ensure they comply with donor-imposed restrictions and state laws. This includes understanding any conditions attached to donated assets and ensuring they are used for their intended purposes post-merger.
- Tax-exempt status
The merging entities must maintain their tax-exempt status. This involves ensuring the combined entity continues to meet the requirements for tax exemption under federal and state law, including adhering to operational and organizational standards set by the IRS.
M&A checklist for nonprofits
Below, we provide an example of a nonprofit merger checklist for you to use for inspiration when drafting the one for your nonprofit mergers and acquisitions.
| Category | Tasks |
|---|---|
| Pre-merger planning |
|
| Due diligence |
|
| Stakeholder engagement |
|
| Integration planning |
|
| Legal considerations |
|
| Post-merger activities |
|
Key takeaways
Let’s summarize the main points from the article:
- M&A in the nonprofit sector refers to the process through which two or more nonprofit organizations combine their operations, assets, and missions to achieve better efficiency, enhance their impact, or address certain financial challenges.
- Top considerations nonprofit leaders should pay attention to before entering the deal include mission alignment, complementary strengths, financial health, leadership and culture, risk assessment, long-term strategy, stakeholder support, and due diligence.
- Additionally, nonprofits should consider legal aspects such as board approval, state laws, asset transfer and restrictions, and the status of a tax-exempt organization.
