To calculate our proforma EPS and EPS accretion/dilution we're going to have to start with our M&A formula That says you start with the acquirer's net income, add on the target net income and then add on any deal adjustments We've got two here, we've got synergies (that only happens because of the deal) And we've got any changes in interest (that only happens because of the deal as well) That will get us our proforma net income and we can then divide that by proforma shares outstanding, to get to proforma EPS And then we'll be able to work out if that is accretive or dilutive vs the acquirer's EPS So where can I get my acquirer's net income from? Well it's just a little bit further up We've got the acquirer's EPS forecast from actual year all the way to three years forward And then we've got WASO (weighted average shares outstanding) if you multiply the two together that will get us net income Great! So let's multiply them together And copy that to the right I could do exactly the same with the target's EPS and the target's WASO. Multiply them and we've got forecast net income Let's put that into the little table below: so acquirer's net income 18 Target's net income 7.9, and we're on our way Now I need my synergies post tax My synergies are a little bit further up We had synergies of 5 per year But we know that's going to have to be after tax. So I'm going to say one minus the tax rate of 30% Now I want to be able to put this to the right in a minute so I'm going to lock both of those cells That's going to assume that our synergies stay flat each year Next I need interest on acquisition debt post tax I'm going to open up some brackets here, I need to work out how much debt we're talking about If we go up to our sources and uses of finance we have two debt fundings here We've got a debt funding of 176.6 and we have revolver of 10 Now I could work out interest on that and then make it post tax However we've got a slight complication here We know that our full funding after the deal is going to be those two figures added together 186.6 (176.6 + 10) That debt funding is also going to be refinancing the existing net debt of 40 So 40 of debt goes out and 40 of debt goes in That 40 of debt that goes in will be part of this 186.6, that's great! However the fact that our target company already had some next debt means that it already had some interest And that interest that already exists is already being accounted for in this calculation, it's in the target net income So existing target interest is within the target net income If I leave my calculation down here and calculate interest on total debt, I'm going to be double counting I'm going to calculate that interest twice and I don't want to do that So what I'm going to have to is I'm going to have to subtract out the existing net debt To make sure that we don't calculate interest on this a second time in that interest line I'm now going to multiple that by my interest rate, my interest rate was 5% And then I'm going to have to multiply all of that by one minus the tax rate of 30% And I want it to be a negative so I times by minus 1 I'm going to go back into the formula and just lock all of those cells so that I can copy this to the right Great That gets me my proforma net income, if I sum all of them together Brilliant, 24.3 Now I need my proforma shares outstanding and that's the number of shares after the deal has happened We had already calculated that as 17.8 And again I'm going to lock onto that Great, we can now work out proforma EPS Net income divided by the proforma shares outstanding gets us to a figure of 1.37 So now it's the moment of truth, is that higher than the acquirer's existing EPS? Well let's go find that existing acquirer EPS (it's just above this calculation here) and it's 1.2 It is higher, that is amazing, we've definitely got accretion We can calculate that percentage accretion by taking the new figure divided by the old and then subtracting one 14% accretion, that's very good However all of these are in the actual year and when we have an acquisition of a target We're only really going to enjoy all these figures in the future years i.e. after the deal happens So let's copy all of those figures to the right Do we have accretion? We do And it's fantastic in year one 18.5 and then 24 and then 26. So this deal is looking positive