Macabacus Complex M&A Model

Ryan MacGregor
www.macabacus.com
feedback@macabacus.com
© 2014 Macabacus, LLC
Built with Macabacus Macros

DISCLAIMER
This model presents a hypothetical M&A transaction between two hypothetical companies. Any similarity between the financial
companies and actual companies is purely coincidental. Macabacus does not provide investment, accounting, or tax advice.

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 Inputs

SCENARIO SELECTOR 9

Active Contemplated Scenarios

Scenario 1 2 3 4 5 6 7 8 9
Purchase price & consideration
Offer premium to market 25.0% 20.0% 25.0% 30.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0%
Cash consideration (%) 50.0% 50.0% 50.0% 50.0% – 50.0% 100.0% 50.0% 50.0% 50.0%

Synergies
Annual revenue syergies $10.0 $10.0 $10.0 $10.0 $10.0 $10.0 $10.0 $10.0 $10.0 $10.0
COGS savings 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
SG&A savings 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%

Acquisition financing
Senior credit facility 3 $75.0 – – – – – – $75.0 $75.0 $75.0
Subordinated note 3 – – – – – – – – – –
Convertible bond 3 – – – – – – – – – –
Preferred stock 3 $125.0 – – – – – – – $125.0 $125.0
Common stock issuance $75.0 – – – – – – – – $75.0

Optional revolver pay-down? Yes No No No No No No Yes Yes Yes

Retire existing TargetCo debt close?

Senior credit facility 2 Yes No No No No No No Yes Yes Yes
Subordinated note 2 Yes No No No No No No Yes Yes Yes
Convertible bond 2 Yes No No No No No No Yes Yes Yes
Preferred stock 2 Yes No No No No No No Yes Yes Yes

Convert convertible bonds at close if ITM? Yes No No No No No No Yes Yes Yes

Convert convertible preferreds at close if ITM? Yes No No No No No No Yes Yes Yes
Roll over TargetCo options (0=liquidate, 1=roll over)? No No No No No No No No No No

General Assumptions Revenue Synergies & Cost Savings Realization

Acquirer name BuyerCo Revenue synergies realization − first 12 months after close 50.0%
Target name TargetCo Revenue synergies realization − second 12 months after close 100.0%
Current BuyerCo stock price $31.71 COGS savings realization − first 12 months after close 50.0%
Current TargetCo stock price $9.16 COGS savings realization − second 12 months after close 100.0%
Transaction close date 6/30/13 SG&A savings realization − first 12 months after close 50.0%
Model currency USD SG&A savings realization − second 12 months after close 100.0%
Currency symbol $
Restructuring Charges
Deal Structure
Total restructuring charge (pre-tax) $200.0
Stock purchase (0=asset, 1=stock)? Yes Restructuring costs realization – at close 25.0%
Section 338 election? No Restructuring costs realization – first 12 months after close 50.0%
Carryover tax basis? Yes Restructuring costs realization – second 12 months after close 25.0%

Tax Assumptions Third Party Financing

BuyerCo tax rate 35.0% Debt issuance fee 3.00%

IRS long-term tax-exempt rate 2.83% Preferred equity issuance fee 3.00%
Common equity issuance fee 3.00%
Miscellaneous Common equity issuance discount 4.00%

Transaction costs expensed at close $30.0 Pro Forma Depreciation & Amortization
Minimum pro forma cash balance $1,400.0
Average interest? No Depreciation period for fixed asset write-ups (yrs) – book 7.0
Depreciation period for fixed asset write-ups (yrs) – tax 9.0
Amortization period for identifiable intangible write-ups (yrs) – book 5.0
Amortization period for identifiable intangible write-ups (yrs) – tax 15.0
Amortization period for goodwill created in deal (yrs) – tax 15.0

Page 2 of 8
 Close

Transaction Closing Calculations

($ and shares in millions, except per share amounts)

Purchase Price Sources & Uses Section 382 Limitation

Current TargetCo stock price $9.16 Sources Purchase price $405.8
Offer premium to market 25.0% Cash $21.7 ( x ) IRS long-term tax-exempt rate 2.83%
Offer price per share $11.45 BuyerCo common stock 205.3 Annual Section 382 NOL deduction limitation $11.5
( / ) Current BuyerCo stock price 31.71 Proceeds from liquidation of TargetCo options 4.9 ( x ) Tax rate 35.0%
Exchange ratio 0.3611x BuyerCo rollover options – (A) Max. annual DTA utilization under Section 382 $4.0
BuyerCo revolver draw-down 236.8 ( x ) Max. NOL carry-forward period (yrs) 14.5
Roll over TargetCo options? No Third party financing 275.0 (B) Realizable tax benefit under Section 382 $58.3
Total sources $743.7
TargetCo basic shares outstanding (BSO) 35.340 (C) Target's existing DTA attributable to NOLs $12.2
( + ) In-the-money TargetCo options liquidated 0.522 Uses (D) Total DTA subject to Section 382 (min. of C and B) 12.2
( + ) TargetCo convertible shares converted – Cash consideration $205.3
TargetCo fully diluted shares outstanding (FDSO) 35.862 Stock consideration 205.3 Transaction DTA / DTL
( x ) Offer price per TargetCo share $11.45 Equity purchase price 410.6 DTL from write-up/down of assets/liabilities $28.6
Equity purchase price $410.6 BuyerCo rollover options – Write off DTL related to purch. accnt. intangibles –
( – ) Proceeds from liquidation of TargetCo options (4.9) TargetCo revolver pay-off – Transaction DTL $28.6
( + ) Fair value of TargetCo options rolled over – Senior credit facility 2 retired –
Purchase price 405.8 Subordinated note 2 retired 45.5 DTA from write-down/up of assets/liabilities –
( + ) Non-convertible debt & preferred stock 45.5 Convertible bond 2 retired 194.5 Write down DTA attributable to NOL (Section 382) –
( + ) Convertible debt & preferred stock 194.5 Preferred stock 2 retired – Transaction DTA –
( + ) Capital leases – Total TargetCo debt & preferred retired 240.0
( + ) Noncontrolling interests – BuyerCo revolver pay-down – Purchase Price Allocation
( – ) Equity investments – Prepayment penalties 4.8 Purchase price $405.8
( – ) Cash & cash equivalents (187.3) Financing fees 8.3 ( + ) FV of noncontrolling interests –
Enterprise value $458.5 Transaction costs expensed at close 30.0 ( – ) Book value (138.7)
Restructuring charge at close 50.0 Excess purchase price to allocate 267.1
Valuation Multiples Total uses $743.7 Write off existing goodwill (61.1)
Market Offer Write off purch. accounting-related intangibles –
2013 Revenue multiple 0.83x 0.98x Cash Schedule Fair value adjustments 81.8
2014 Revenue multiple 0.82x 0.97x Cash available Transaction DTL (28.6)
2013 EBITDA multiple 3.06x 3.62x BuyerCo existing cash $1,234.4 Transaction DTA –
2014 EBITDA multiple 3.07x 3.64x TargetCo existing cash 187.3 ( – ) Book value adjustments (7.9)
2013 EBIT multiple 4.29x 5.08x ( + ) New sources of cash 516.7 Excess purchase price after allocation 275.0
2014 EBIT multiple 4.32x 5.12x ( – ) Minimum pro forma cash balance (1,400.0) ( + ) Bargain purchase gain –
2013 P / E multiple 8.03x 10.07x Total cash available $538.4 Goodwill created $275.0
2014 P / E multiple 8.06x 10.10x
Cash needed Restructuring Charge at Close
Pro Forma FDSO at Close Cash consideration $205.3 Total restructuring charge (pre-tax) $200.0
BuyerCo standalone FDSO 219.330 TargetCo debt & preferred retired 240.0 ( x ) Restructuring charge realized at close 25.0%
( + ) BuyerCo shares issued as consideration to seller 6.475 Restructuring charge at close 50.0 Restructuring charge at close (pre-tax) $50.0
( + ) BuyerCo shares issued to third parties 2.460 Prepayment penalties 4.8
( + ) TargetCo options rolled over (Treasury Method) – Financing fees 8.3 Model Checks
( + ) BuyerCo warrants issued (Treasury Method) – Advisory fees 30.0 Sources equal uses of funds OK
Pro forma FDSO 228.264 Cash needed before revolver pay-down 538.4 Cash used does not exceed cash available OK
Existing BuyerCo shareholder pro forma ownership 96.1% Optional pay-down of BuyerCo revolver Yes – Transaction balance sheet balances OK
Total cash used $538.4 Pro forma balance sheet balances OK
BuyerCo standalone balance sheet balances OK
TargetCo Fair Value Adjustments TargetCo standalone balance sheet balances OK
Excess purch. price allocated to identifiable intangibles (%) 25.0% Pro forma revolver not overdrawn OK

Asset / Liability Asset? BV at Close FV at Close FV Mark DTA Created DTL Created
PP&E Yes $51.1 $66.1 $15.0 – $5.3
Identifiable intangibles Yes – 66.8 66.8 – 23.4
[Asset 3] Yes – – – – –
[Liability 1] No – – – – –
[Liability 2] No – – – – –
[Liability 3] No – – – – –
Total – $28.6

TargetCo Stock Options

TargetCo Options Outstanding Liquidation Rollover
Number of Average In-the-money Proceeds in Replacement New Avg. Treasury Intrinsic
Options Strike Options Liquidation BuyerCo Options Strike Method Value
Tranche 1 0.402 $9.13 0.402 $3.7 0.145 $25.28 0.029 $0.9
Tranche 2 0.120 9.93 0.120 1.2 0.043 27.50 0.006 0.2
Tranche 3 0.466 11.60 – – 0.168 32.13 – –
Tranche 4 0.300 12.64 – – 0.108 35.01 – –
Tranche 5 0.520 19.48 – – 0.188 53.95 – –
Tranche 6 0.422 27.03 – – 0.152 74.86 – –
Tranche 7 0.375 45.78 – – 0.135 126.78 – –
Tranche 8 – – – – – – – –
Tranche 9 – – – – – – – –
Tranche 10 – – – – – – – –
Total 0.522 $4.9 0.035 $1.1

Third Party Financing

Issuance Fees
Debt Gross Issuance Capitalized Fee Capitalized Netted Against Net
Instrument? Issuance Fee (%) Amortization (yrs) Issuance Fees Proceeds Proceeds
Senior credit facility 3 Yes $75.0 3.00% 5.0 $2.3 – $75.0
Subordinated note 3 Yes – 3.00% 7.0 – – –
Convertible bond 3 Yes – 3.00% 7.0 – – –
Preferred stock 3 No 125.0 3.00% NA – 3.8 121.3
Common stock No 75.0 3.00% NA – 2.3 72.8
Total third party financing $275.0 $2.3 $6.0 $269.0

TargetCo Debt & Preferred Stock Conversion & Repayment

Pre-Conversion Conversion Post-Conversion Repayment Post-Repayment
Face Is Security Conversion Convertible In-the-Money Convert at Is Security Converted Additional Face Repay Prepayment Prepayment Face
Value Convertible? Price Shares at Offer Price? Close if ITM? Converted? Shares Paid-in Capital Value Debt? Penalty (%) Penalty ($mm) Value
Senior credit facility 2 – No – – No Yes No – – – Yes 2.00% – –
Subordinated note 2 $45.5 No – – No Yes No – – $45.5 Yes 2.00% $0.9 –
Convertible bond 2 $194.5 Yes $26.77 7.266 No Yes No – – $194.5 Yes 2.00% $3.9 –
Preferred stock 2 – No – – No Yes No – – – Yes 2.00% – –
Total – – $4.8

Transaction balance sheet

BuyerCo TargetCo Fair Value Adjustments Fair Value Purchase Acquired Transaction & Balance Third Party Financing Pro Forma Pro Forma
Standalone Standalone Write Off Purch. Fair Value New Net DTL of Acquired Accounting Incremental Restructuring Sheet Debt Preferred Common Incremental Consolidated Total
($ in millions) 6/30/13 6/30/13 Accnt. Intang. Marks (pre-tax) from FV Marks Balance Sheet Adjustments Balance Sheet Charges at Close Restructuring Issuance Issuance Issuance Balance Sheet Balance Sheet Adjustments

Assets

Cash and equivalents $1,234.4 $187.3 $187.3 ($200.4) ($13.1) ($52.0) ($6.3) $73.5 $121.3 $72.8 $196.1 $1,430.5 $8.8
Accounts receivable 673.5 144.9 144.9 144.9 144.9 818.3 –
Inventory – – – – – – –
Deferred tax asset, current 129.1 9.4 9.4 9.4 9.4 138.4 –
Other current assets 143.9 8.8 8.8 8.8 8.8 152.7 –
Total current assets 2,180.9 350.3 – – – 350.3 (200.4) 149.8 (52.0) (6.3) 73.5 121.3 72.8 359.1 2,539.9 8.8
PP&E, gross 517.6 51.1 15.0 66.1 66.1 66.1 583.6 15.0
( – ) Accumulated depreciation (56.8) (13.1) (13.1) (13.1) (13.1) (69.9) –
PP&E, net 460.7 38.0 – 15.0 – 53.0 – 53.0 – – – – – 53.0 513.7 15.0
Goodwill 1,487.6 61.1 (61.1) – 275.0 275.0 275.0 1,762.6 213.9
Purchase accounting-related intangibles – – – 66.8 66.8 66.8 66.8 66.8 66.8
Other intangible assets 253.7 31.7 31.7 31.7 31.7 285.4 –
Equity investments – – – – – – –
Unearned compensation – – – – – – –
Capitalized debt financing costs – – – – 2.3 2.3 2.3 2.3
Other assets 464.0 14.3 14.3 14.3 14.3 478.3 –
Total assets $4,847.0 $495.3 ($61.1) $81.8 – $516.0 $74.6 $590.6 ($52.0) ($6.3) $75.8 $121.3 $72.8 $802.0 $5,649.0 $306.7

Liabilities & Shareholders' Equity

Accounts payable $217.0 $22.0 $22.0 $22.0 $22.0 $239.0 –

Accrued expenses 460.9 16.4 16.4 16.4 16.4 477.3 –
Client deposits – – – – – – –
Income taxes payable 41.8 3.1 3.1 3.1 3.1 45.0 –
Deferred revenue 247.9 21.2 21.2 21.2 21.2 269.1 –
Other current liabilities – 38.6 38.6 38.6 38.6 38.6 –
Current portion of long-term debt 2.2 – – – – 2.2 –
Total current liabilities 969.7 101.3 – – – 101.3 – 101.3 – – – – – 101.3 1,071.1 –
BuyerCo revolver – – – – 236.8 236.8 236.8 236.8
Senior credit facility 1 – – – – – – –
Subordinated note 1 – – – – – – –
Convertible bond 1 471.4 – – – – 471.4 –
Total BuyerCo debt 471.4 – – – – – – – – 236.8 – – – 236.8 708.2 236.8
TargetCo revolver – – – – – – – –
Senior credit facility 2 – – – – – – – – – –
Subordinated note 2 – 45.5 – 45.5 – 45.5 (45.5) – – (45.5)
Convertible bond 2 – 194.5 – 194.5 – 194.5 (194.5) – – (194.5)
Total TargetCo debt – 240.0 – – – 240.0 – 240.0 – (240.0) – – – – – (240.0)
Senior credit facility 3 – – 75.0 75.0 75.0 75.0
Subordinated note 3 – – – – – –
Convertible bond 3 – – – – – –
New debt issued – – – – – – – – – – 75.0 – – 75.0 75.0 75.0
Net deferred tax liability / (asset) – (2.6) 28.6 26.0 26.0 – 0.8 26.8 26.8 29.4
Other liabilities 503.0 17.9 17.9 17.9 17.9 520.9 –
Total liabilities 1,944.1 356.6 – – 28.6 385.3 – 385.3 – (3.2) 75.8 – – 457.8 2,401.9 101.2
Noncontrolling interest – – – – – – –
Preferred stock 1 – – – – – – –
Preferred stock 2 – – – – – – – – – –
Preferred stock 3 – – – – 125.0 125.0 125.0 125.0
Common stock, par value 3.9 0.6 0.6 (0.6) – – 3.9 (0.6)
Additional paid-in capital (APIC) 2,239.6 371.4 371.4 (166.1) 205.3 (3.8) 72.8 274.3 2,513.9 (97.1)
Treasury stock (774.7) (667.9) (667.9) 667.9 – – (774.7) 667.9
Accum. & other comp. income / (loss) 6.6 (0.4) (0.4) 0.4 – – 6.6 0.4
Retained earnings 1,427.6 434.9 434.9 (434.9) – (52.0) (3.1) (55.1) 1,372.5 (490.0)
Total liabilities & shareholders' equity $4,847.0 $495.3 – – $28.6 $524.0 $66.6 $590.6 ($52.0) ($6.3) $75.8 $121.3 $72.8 $802.0 $5,649.0 $306.7

Shares Outstanding

Basic shares outstanding (mm) 216.443 35.340 35.340 (28.865) 6.475 6.475 222.918
Fully diluted shares outstanding (mm) 219.330 35.343 35.343 (28.868) 6.475 6.475 225.805

Check – – – – – –

Page 3 of 8
 Pro Forma
x Income Statement
x Balance Sheet
x Cash Flow Statement
x Working Capital
x Equity Investments
x Debt Schedule
x Depreciation Schedule
x Amortization Schedule
x Tax Schedule
x Revenue Synergies, Cost Savings, and Restructuring Costs
x Amortization of Capitalized Debt Financing Costs
x Summary Credit Metrics
 Acquirer
x BuyerCo Income Statement
x BuyerCo Balance Sheet
x BuyerCo Cash Flow Statement
x BuyerCo Working Capital
x BuyerCo Equity Investments
x BuyerCo Debt Schedule
x BuyerCo Depreciation Schedule
x BuyerCo Tax Schedule
x BuyerCo Shares Outstanding
x BuyerCo Summary Credit Metrics
 Target
x TargetCo Income Statement
x TargetCo Balance Sheet
x TargetCo Cash Flow Statement
x TargetCo Working Capital
x TargetCo Equity Investments
x TargetCo Debt Schedule
x TargetCo Depreciation Schedule
x TargetCo Tax Schedule
x TargetCo Shares Outstanding
x TargetCo Summary Credit Metrics
x TargetCo Acquisition Multiple Matrix
Modified Accelerated Cost Recovery System (MACRS)

Property Class
Year 3 5 7 10 15
1 33.33% 20.00% 14.29% 10.00% 5.00%
2 44.45% 32.00% 24.49% 18.00% 9.50%
3 14.81% 19.20% 17.49% 14.40% 8.55%
4 7.41% 11.52% 12.49% 11.52% 7.70%
5 11.52% 8.93% 9.22% 6.93%
6 5.76% 8.92% 7.37% 6.23%
7 8.93% 6.55% 5.90%
8 4.46% 6.55% 5.90%
9 6.56% 5.91%
10 6.55% 5.90%
11 3.28% 5.91%
12 5.90%
13 5.91%
14 5.90%
15 5.91%
16 2.95%
17
18
19
20
21
Total 100.00% 100.00% 100.00% 100.00% 100.00%
Source: IRS Publication 946, Table A-1.
20
3.75%
7.22%
6.68%
6.18%
5.71%
5.29%
4.89%
4.52%
4.46%
4.46%
4.46%
4.46%
4.46%
4.46%
4.46%
4.46%
4.46%
4.46%
4.46%
4.46%
2.23%
100.00%