We're at that point in any m&a model when we start to get a little bit excited have we achieved EPS secretion? While it's not the only metric that we care about in an m&a. It is an important one and if you can get EPS secretion certainly after a couple of years, it doesn't have to be after the first year.

Then that's a strong indication that the deal might be successful.

One thing we need to do is ensure that we've got interest turned on because at the moment mine in it net income is gonna really high because there's no interest flowing through it.

In order to do this, we need to do two things. We need to enable iterative calculations so I can do that by going to file options.

Going to formulas and enabling iterative calculations.

And I need to turn the circular switch on now. Our circular switch is on the model intro tab.

It's in cell C9. When I press a 1 there will get interest going to the acquire tab through the two target tabs and through the new code tab also get tax going through as well. So anything circular gets turned on.

And I can see in the bottomless hand corner. I've got the word calculate that tells me that that is happening.

The proforma nuco EPS is available on the income statement, but I want to make an adjustment to it.

So let's start by getting the proforma nuco normalized. Net income. And again that's on the income statement of the new code tab.

Please go down and then you go tab that's in row 37 and we're after column G. That's the first year after the deal date.

Now, let's make an adjustment to this.

What we've got in the next line down is the pp&e Step Up depreciation post tax. So what's going on here? Well when we have a PPD step up that means the value of our pp&e inset goes up.

But that also means you have extra depreciation and that extra depreciation is an extra expense in your income statements pushing your EPS down.

But you can think that that expense it's not really real the PPD Step Up didn't involve any extra cash flows. The extra expense of depreciation isn't really a cash flow either.

Should I really be judging this deal including that extra depreciation from the Step Up? And the answer is often. Not really.

So what we're going to do is we're going to add that back. We're gonna go find the depreciation post tax.

We've got that on the calc tab.

There's our people need to appreciation. It's currently a negative. I'm Gonna Change it to a positive.

But I want to take away the tanks as well. And we've got that in our deferred tax liability unwinding that's the tax on the depreciation.

Fantastic, so I now add the two together and I finally got my proforma new code normalized cash. Net income.

You might notice that PP depreciation only made a marginal difference.

Let's go get the waso again. That's on the new code tab.

again from column G and now I can calculate that EPS. So take the net income divided by the EPs and we get figure of 4.8.

now is that better or is that worse than buyers Standalone eps? Well, we can get that from the acquire tab.

On the acquire tab if I go down to row 36.

And my diluted EPS in column G. It was a five. Oh, no. Oh no sad times.

If you work out the dilution that's happened here. I take the new figure over the old figure and then I subtract one.

We get to 5.4% When we have dilution, it can be useful to calculate the additional pre-tax synergies needed to break even.

To do this what we do is we firstly work out the difference.

Between the two eps's I shortfall.

Then I multiply that up by the number of shares.

That's the shortfall in my net income.

But synergies are pre-tax net incomes post tax. So what we're going to do is we're going to divide that by one minus the tax rate.

That will then give us a pre-tax figure that tax rate is on the assumptions tab. It's all the way down in the bottom left hand corner, then you can marginal tax rate and I'm going to lock on to that.

So the additional synergies needed would be 383.

However, we can't judge a company's EPS accretional dilution post deal just one year after the deal. So let's copy all of these figures to the right and let's see what happens.

Fantastic, we've had a creation just two years after the deal it becomes a creative and then it progressively becomes more and more recreative even better.

So what is this saying to us? This is saying the numbers improve. We've also got synergies that gradually increase as the years go on restructuring costs that fall away the proforma EPS gradually improves.

So quite normal to see dilution, maybe one or two years after the deal, but if we can see a creature within the first three years fantastic.