# How to Calculate the Total Equity Value of a Merger

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When two or more companies undergo a merger to become a larger company, the value and hence the total equity changes. Calculating the total equity value of the merger is often a highly complex process that involves the work of accountants who specialize in valuing mergers and acquisitions. If you wish to get a rough estimate of the total equity value of the merger before the publication of its first financial statement, however, a relatively simple calculation can be performed provided that you have the appropriate information.

Add up the stock price of both companies before the merger. So, if the price per share of company A was \$5.60 and the price per share of company B was \$7.30, adding these two share prices together gives a value of \$12.90.

Multiply the stock price of both companies before the merger by the number of shares after the merger. Let's say the newly merged company decided to float 100,000 shares of common stock on the stock market. Then, multiplying 100,000 by \$12.90 gives a result of \$1,290,000. Name this result "A." This value represents the pre-merger value of both companies, plus the synergies gained from the merger. Synergies are the cost gains from merging two or more companies, and may include the selling of duplicate machinery, downsizing the workforce and economies of scale.

Add up the total liabilities of both companies before the merger. Liabilities represent what each company owes, not owns. The information is easily obtained from the latest financial report from each company. So, if the total liabilities of company A is \$250,000 and the total liabilities of company B is \$130,000, adding both of these values gives a figure of \$380,000. Name this result "B."

Subtract "B" from "A" to get a rough estimate of the total equity value of the merger. Using the same example, subtracting \$380,000 from \$1,290,000 gives a total equity value of \$910,000.

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