Before we can begin with our m and a analysis, we need to work on our key assumptions for this model.

So let's begin with the fee as a percentage of acquisition equity value. If you recall from the handout, we were told to use a fee percentage in the range of 0.5 to 1%. Now, because this deal has significant risks, we are gonna assume a percentage in the upper bound of that range, so that would be 1%.

Now, to our synergies, we were told in the handout that our run rate on synergies is 5% of LTM revenue, and this will be achieved within two years. So in the context of our challenge, that would be by 2027.

So let's type in here, then 5%, and then later on we're gonna use that to actually calculate our synergies. Next, what is the maximum leverage ratio or net debt to ebitda? Now, to get a sense for this number, let's start first by looking at the handout. We were told that the company wants to maintain an investment grade credit rating, so we can use Felix to get a sense for what that ratio is for the sector.

But where do we find this data? In Felix? You can go up to the data tab at the very top under US data, you will click on capital structure analysis and that will take you to the cap structure data across different sectors. Now, you'll see here that the second row is the aerospace and defense sector, and there you will see a net debt to EBITDA of two times. Now that's the average. If you do a little more digging, you will find that for a company in this sector to maintain its investment grade rating, the leverage ratio shouldn't really exceed three x.

So let's go back to Excel and let's type A three here.

So we can now move on to the amount of cash on the acquirers balance sheet.

So we need to go back to Felix up to the top. We can click on the Felix logo here, type GD for the acquirer.

That's gonna take us to the company page. And we can see here that the acquirer has $1.451 billion in cash and short term financial assets. So let's type that here, 1451.

Now to our next assumption, which is the minimum cash as a percentage of LTM revenues. Now, if you recall, that was 1%, but let's go and look at the handout. And it says here that we're gonna assume that the target has a change of control clause and that the combined business requires a minimum cash balance of 1% of LTM combined revenues, excluding synergies.

So for now, we can type the 1% here and here in the row below, we have to calculate the amount of cash that the acquirer has available to use in the purchase of the target.

So we are gonna take the current cash in the balance sheet, and now we gotta take out that 1%. So we're gonna say minus 1% times, and we need the combined LTM revenues. So I'm gonna go all the way to the top where I have my LTM revenues for the acquirer, that's 49 billion, and I'm gonna add that to the LTM revenues for the target at about 21 billion. And that's gonna give us the amount of cash that is actually available to use in the financing of this deal.

So let's move on to getting the acquirers cost of debt. We can get that from Felix again. Now, right now we are already on the acquirers company page, and on the right side of the screen under the WAC calculator section, you will see here cost of debt 5.05%. So let's copy that down. Great. We have three more assumptions to go. The first one is the target's cost of debt, then the return on cash, and finally the tax rate. So if you go back to the handout, you will find out that the target's cost of debt is given at 5%. The return on cash for both the target and the acquire is given a 3%.

And finally, the tax rate also for both companies will be 21%.