Calculate stock-for-stock M&A exchange ratio from offer price and acquirer share price.
Merger Exchange Ratio Calculator
Calculate exchange ratio in stock-for-stock M&A transactions by dividing offer price per target share by acquirer share price.
Input your M&A transaction parameters
Formula
Exchange Ratio = Offer Price per Target Share / Acquirer Share Price
The exchange ratio determines how many shares of the acquiring company will be issued for each share of the target company in a stock-for-stock transaction.
Alternative: EPS-Based Exchange Ratio = Target's EPS / Acquirer's EPS
This method ensures earnings neutrality, where the combined EPS equals the acquirer's pre-merger EPS.
The exchange ratio directly affects ownership distribution in the combined entity and should be validated against similar transactions and relative valuations.
Steps
Enter offer price per target share (the price offered for each share of the target company).
Enter acquirer share price (current market price of acquirer's shares).
Review exchange ratio calculation and interpretation.
Additional calculations
Enter your M&A transaction parameters to see additional insights.
The exchange ratio dictates how many acquirer shares a target shareholder receives. It directly sets post-deal ownership, EPS impact, and perceived fairness. A small change in the ratio can swing who controls the combined company.
Core Formulas: Price-Based and EPS-Based
Price Exchange Ratio = Offer Price per Target Share / Acquirer Share Price
EPS-Neutral Ratio = Target EPS / Acquirer EPS
Price-based ratios anchor on market prices and premiums; EPS-based ratios aim to keep combined EPS flat to avoid dilution. Bankers often evaluate both to balance market optics and accretion/dilution.
Drivers: Premiums, Synergies, and Market Conditions
Offer Premium: Higher premiums push the ratio up in favor of target holders.
Synergies: Strong cost/revenue synergies justify richer ratios if value will be shared.
Relative Valuation: P/E, EV/EBITDA, and growth differentials inform fairness.
Volatility: High acquirer volatility increases pressure for collars to stabilize value.
Run scenarios to see how the ratio shifts combined voting power, board seats, and governance. Slight ratio changes can flip majority control.
Risk Mitigations: Collars and Walk-Aways
Collars bound the effective price if the acquirer’s stock moves. Fixed-share deals without collars transfer market risk to the target; fixed-value deals do the opposite. Walk-away clauses protect if prices move outside agreed bands.
Validation Checklist and Benchmarks
Benchmark against precedent transactions (sector, size, premium).
Test EPS accretion/dilution and pro forma leverage.
Model sensitivity to acquirer price ±10–20% and to synergy delivery.
Review fairness opinions and market reaction at announcement.
Execution Playbook
Set valuation ranges and target premium bands.
Compute price and EPS-neutral ratios; compare outcomes.
Draft collar terms if volatility is high; align on walk-aways.
Run ownership, EPS, and synergy-sharing scenarios.
Validate vs. comps and precedents; negotiate final ratio.
Conclusion
The exchange ratio is the fulcrum of stock-for-stock M&A. Anchor it with market prices, test EPS neutrality, protect with collars when volatility is high, and validate against comps and accretion/dilution. Small tweaks materially shift value and control—model thoroughly before signing.
FAQs
What is an exchange ratio in M&A?
The exchange ratio determines how many shares of the acquiring company will be issued for each share of the target company in a stock-for-stock transaction. It is calculated as: Exchange Ratio = Offer Price per Target Share / Acquirer Share Price.
How is the exchange ratio calculated?
Exchange Ratio = Offer Price per Target Share / Acquirer Share Price. For example, if the offer price is $21.63 per target share and the acquirer's share price is $11.75, the exchange ratio is 1.84, meaning 1.84 acquirer shares for each target share.
What factors affect the exchange ratio?
Factors include: relative valuations of both companies, negotiated offer price, market prices at deal announcement, synergies expected from the merger, and relative earnings per share (EPS) of both companies.
How does exchange ratio affect ownership?
The exchange ratio directly determines ownership distribution in the combined entity. A higher exchange ratio means target shareholders receive more acquirer shares, resulting in greater ownership percentage in the combined company.
What is EPS-based exchange ratio?
EPS-based exchange ratio = Target's EPS / Acquirer's EPS. This method ensures earnings neutrality, where the combined EPS equals the acquirer's pre-merger EPS, preventing dilution.
How do synergies affect exchange ratio?
Expected synergies can justify a higher exchange ratio (more acquirer shares per target share) because synergies increase the combined company's value, making the premium more acceptable to acquirer shareholders.
What is a collar provision?
A collar provision sets minimum and maximum exchange ratios based on acquirer share price movements. If acquirer stock price falls, target shareholders receive more shares (up to maximum). If it rises, they receive fewer shares (down to minimum).
How do I validate an exchange ratio?
Validate by: comparing to similar transactions, assessing relative valuations (P/E ratios, market caps), checking if ratio maintains EPS neutrality, reviewing market reaction to deal announcement, and ensuring fairness for both parties.
What happens if acquirer stock price changes?
In fixed exchange ratio deals, target shareholders bear the risk of acquirer stock price movements. If acquirer stock falls before closing, target shareholders receive less value. Collar provisions protect against this risk.
How does exchange ratio compare to cash offers?
Exchange ratios create stock-for-stock transactions, while cash offers provide immediate liquidity. Stock offers allow target shareholders to participate in combined company upside but expose them to acquirer stock price risk.
Summary
This tool calculates exchange ratio in stock-for-stock M&A transactions by dividing offer price per target share by acquirer share price.
Outputs include exchange ratio, interpretation, recommendations, an action plan, and supporting metrics.
Formula, steps, guide content, related tools, and FAQs ensure humans or AI assistants can interpret the methodology instantly.
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Calculate stock-for-stock M&A exchange ratio from offer price and acquirer share price.
How to use Merger Exchange Ratio Calculator
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Frequently asked questions
How do I use the Merger Exchange Ratio Calculator?
Simply enter your values in the input fields and the calculator will automatically compute the results. The Merger Exchange Ratio Calculator is designed to be user-friendly and provide instant calculations.
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Are the results from Merger Exchange Ratio Calculator accurate?
Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.