Arcvue
Arcvue M&A Analysis
How to Evaluate an M&A Deal
Model an acquisition from start to finish—target financials, debt structure, earnouts, combined projections, covenant testing, and equity returns. Supports single deals and multi-deal evaluation configs. Arcvue runs all of it against your actual balance sheet and the covenants in the credit agreement you already have.
Before You Start
- You need CEO or COO role access (M&A is restricted by default).
- Have the target company’s financial information ready: revenue, gross margin, EBITDA, and ideally 2 years of historical data plus management projections.
- Know the proposed purchase price, debt structure (unitranche vs. traditional), and any earnout terms.
- Understand your company’s current debt position (Arcvue reads this automatically from your debt schedule).
Step 1—Navigate to M&A
From the main navigation, select M&A. The landing page lists your deals, with Add Deal to create one and Compare Deals to put two side by side. Opening a deal launches a six-stage workflow, and each stage shows its own summary so you can see what is still missing.
| Stage | Purpose |
|---|---|
| 1 · Deal Basics | Deal name, status, purchase price, earnout, and seller notes |
| 2 · Target Financials | Enter the target company’s financial data |
| 3 · Deal Structure | Acquisition debt, the earnout schedule, and the close-day sources & uses waterfall—the stage tells you whether it balances |
| 4 · Pro Forma | Combined projections and covenant analysis—the results view |
| 5 · Scenarios | Performance variants on the deal |
| 6 · Evaluation | Covenant step-downs, exit multiples, and the go / no-go read |
Screen the M&A deal workflow.
Step 2—Create a Deal
- Enter a Deal ID (short identifier) and Deal Name.
- Enter the target company name and select the close date (year and month).
- Choose the Debt Structure: Unitranche (single blended loan, simpler) or Traditional (senior term loan + sub debt + revolver, potentially cheaper blended rate).
- Enter the purchase price and click Create Deal.
Arcvue seeds 7 years of target financial placeholders (2 historical + close year + 4 projection years), default debt instruments based on your structure choice, and a Base Case scenario.
Close date matters. A mid-year close (e.g., July) means the target only contributes 6 months of revenue and EBITDA in the close year. The system prorates everything automatically, but covenant metrics for a partial year are annualized—so a strong six-month result may look different when annualized.
Step 3—Configure Deal Terms
In stage 1 · Deal Basics.
Core Terms
| Field | What to Enter |
|---|---|
| Purchase Price | Total cash to seller at close |
| Transaction Expenses | Legal, advisory, diligence costs (typically 2–3% of deal value) |
| TTM EBITDA Override | If the seller provides trailing 12-month EBITDA, enter here—used for transaction multiples |
| Tax Rate | Combined federal/state rate as a decimal (e.g., 0.25 = 25%) |
Screen stage 1 · Deal Basics.
Seller Notes & Equity Rollover
| Field | What It Means |
|---|---|
| Existing Seller Note (Assumed) | Debt from the target that you’re assuming at close |
| New Seller Note | Financing provided by the seller as part of the deal |
| Target Equity Rollover | Target shareholders reinvest this amount in the combined entity (reduces cash needed at close) |
Screen stage 1 · Deal Basics.
Earnout Configuration
If the deal includes an earnout, enter the total earnout pool and define up to 5 measurement periods.
| Field | What It Means |
|---|---|
| Measurement Year | The fiscal year when target GP is measured |
| Payment Year | When the earnout is actually paid (typically ~7 months after the measurement year ends) |
| Base Amount | Maximum earnout available for this period |
| GP Threshold | Minimum gross profit before any earnout is earned (the floor) |
| GP Target | GP at which 100% of the base is earned (the goal) |
| Carryover % | Percentage of unearned earnout that rolls to the next period |
Screen stage 1 · Deal Basics, earnout schedule.
Carryover preserves deal dynamics. If only 50% is earned in Period 1 and carryover is 75%, then 75% of the unearned amount rolls into Period 2’s available base—a rough Year 1 doesn’t kill the entire earnout.
Basis a worked example at the stated carryover rate. An example set. Illustrative figures, not a company’s.
Step 4—Enter Target Financials
In stage 2 · Target Financials, enter 7 years of data.
| Row | Input? | What to Enter |
|---|---|---|
| Revenue | Yes | Annual revenue in dollars |
| Gross Margin % | Yes | As a decimal (0.35 = 35%) |
| Indirect Expenses | Yes | Operating costs not in COGS (SG&A, R&D, etc.) |
| Adjustments | Yes | EBITDA add-backs (non-recurring items, owner salary normalization) |
| Depreciation | Yes | Annual D&A |
| Gross Profit / EBITDA / Adj. EBITDA | Auto | Calculated from your inputs |
Screen stage 2 · Target Financials.
Use audited financials or quality of earnings numbers for historical years. For projection years, use management projections adjusted for your diligence findings.
Common add-backs include owner compensation above market, one-time legal costs, non-recurring project losses, and above-market rent in a related-party lease arrangement. Only add back items that genuinely won’t recur under your ownership.
Step 5—Structure the Financing
In stage 3 · Deal Structure, configure the debt instruments that fund the acquisition. The tab first shows your existing debt at close (read-only)—the acquisition lender must provide enough to retire this AND fund the purchase price.
| Field | What to Enter |
|---|---|
| Type | Unitranche, Senior, Sub Debt, Revolver, or Seller Note |
| Principal | Loan amount (disabled if marked as Plug) |
| Interest Rate | Annual cash interest rate (e.g., 0.085 = 8.5%) |
| PIK Rate | Payment-in-kind rate for sub debt (accrues to balance, no cash required) |
| Term | Amortization period in years |
| Facility Cap | Revolver only: maximum borrowing limit |
Screen stage 3 · Deal Structure.
For each instrument, enter a mandatory amortization schedule—the percentage of original principal required each year. A typical GovCon acquisition runs 2% in Year 1, 5% in Year 2, 10% in Years 3 and 4, and a 100% balloon in Year 5.
The Plug instrument. Mark exactly one instrument as the Plug. Its principal auto-sizes to make Sources = Uses. This mirrors how real deals work.
Basis a worked example of plug sizing. An example set. Illustrative figures, not a company’s.
Step 6—Verify Sources & Uses
Still in stage 3 · Deal Structure, open the sources & uses view and click Recompute Sources & Uses.
Uses: cash to seller, retiring existing bank debt (always retired at close), transaction expenses, and any notes flagged for retirement. Sources: seller notes, target equity rollover, each debt instrument’s principal, and the plug instrument.
| Multiple | Calculation |
|---|---|
| Cash Multiple | Purchase Price / Target Adj. EBITDA |
| Total Proceeds Multiple | (Purchase Price + Max Earnout) / Target Adj. EBITDA |
Screen the sources & uses view.
GovCon cash multiples typically range 4–8x depending on size, growth, and contract quality. If your multiple is above 7x, scrutinize the target’s growth projections carefully.
Step 7—Read the Deal Summary
Stage 4 · Pro Forma is the results dashboard—where all the modeling comes together.
| Metric | What It Tells You |
|---|---|
| Combined EBITDA | Your EBITDA + target EBITDA (prorated for partial close year) |
| Sr Bank Leverage | Senior bank debt / Combined EBITDA—the metric your lender watches most |
| FCCR | (EBITDA − Taxes) / Fixed Charges—can you service all obligations? |
| Total Debt | Everything: term loans + revolver + sub debt + seller notes |
| Equity Value | Enterprise value minus all debt |
Screen stage 4 · Pro Forma.
The Cash Flow Waterfall
The most important table for understanding deal viability. It answers one question twice: can you pay your debts, and what is left afterward for the equity.
Basis a worked example of the pro forma waterfall. An example set. Illustrative figures, not a company’s.
If FCF after debt service is negative, the model draws on the revolver to survive. Persistent revolver draws year-over-year are a red flag—the deal isn’t generating enough cash.
Credit Statistics & Covenant Compliance
Year-by-year covenant testing for Senior Bank Leverage and FCCR. The leverage arc tells the story: in a healthy deal, leverage starts high (4–5x at close) and drops steadily. By Year 5 it should be 2–3x. If leverage stays flat or increases, the target isn’t growing as expected.
Pro Forma Valuation
Example a worked example at the stated exit multiple. Basis Cash MOIC is equity value over purchase price; Total MOIC is equity value over purchase price plus earnout. Both denominators are the deal’s own terms, so neither is worked here. An example set. Illustrative figures, not a company’s.
GovCon PE targets typically look for 2.5–3.5x Cash MOIC over 5 years. Cash MOIC is the primary return metric—how many times you get your cash investment back.
Step 8—Configure Covenants and Exit Multiples
In stage 6 · Evaluation, set per-year covenant thresholds.
| Field | Typical Pattern | What It Means |
|---|---|---|
| Max Leverage | 5.5x → 5.0x → 4.5x → 4.0x | Gets tighter over time as synergies are realized |
| Min FCCR | 1.10x → 1.15x → 1.20x | Coverage requirement increases as integration stabilizes |
| Exit Multiple | 5.0x → 6.0x → 7.0x → 8.0x | Higher multiples at higher scale |
Screen stage 6 · Evaluation.
Step 9—Run Scenarios
In stage 5 · Scenarios, create performance variants.
| Scenario | Example Inputs | What It Models |
|---|---|---|
| Upside | Target Revenue +10%, Target Margin +200 bps, Earnout 100% | Target outperforms; cross-sell lifts acquirer |
| Downside / Credit Case | Target Revenue −10%, Target Margin −150 bps, Earnout 0% | Target loses key contract; integration drag; misses earnout |
Screen stage 5 · Scenarios.
The credit case is what your lender cares about most. If the deal services its debt and passes covenants in the downside scenario, it’s financeable. If the downside breaks covenants, the lender will require more equity, tighter terms, or a lower purchase price.
Step 10—Multi-Deal Evaluation
If you’re evaluating multiple acquisitions simultaneously, create an Evaluation Config: select two or more deals, set a synchronized close date, configure combined debt instruments, and set combined covenant thresholds.
| Aspect | Single Deal | Multi-Deal (Eval Config) |
|---|---|---|
| Financing | Per-deal instruments | Shared instruments across all deals |
| Covenants | Per-deal thresholds | Unified thresholds for combined entity |
| Scenarios | Per-deal adjustments | Each deal picks its own scenario independently |
| Revenue | Acquirer + 1 target | Acquirer + all targets combined |
Basis the evaluation config.
The evaluation config is a lens, not a mutation. It doesn’t change any individual deal’s data. It creates a combined projection view that shows what happens if you do all selected deals together.
You can mix scenarios across deals—one on Upside and another on Credit Case—to answer: “If one outperforms but the other underperforms, do we still pass covenants?” Quick presets run All Base, All Upside, or All Downside with one click.
Key M&A Concepts
Leverage Multiple
Leverage = Total Funded Debt / Adj. EBITDA
In GovCon, 4–6x is typical for platform acquisitions; 3–4x for tuck-ins. The leverage arc should decline from about 5x at close to about 2.5x by Year 5 through debt amortization and EBITDA growth.
FCCR (Fixed Charge Coverage Ratio)
FCCR = (EBITDA − Taxes) / (Interest + Mandatory Amort + Earnout + CapEx)
For every dollar of fixed obligations, how many dollars of cash flow do you generate? 1.2x minimum is standard—below that, you can’t reliably service your debt.
PIK Interest
Payment-in-kind interest accrues and adds to the loan balance instead of requiring cash payment. This preserves cash flow in early years, but the balance grows. At maturity, you owe more than you borrowed.
The Operator’s View
M&A deals get done when both the buyer and the seller are equally unhappy. If either side is significantly more unhappy than the other, one of two things happened: the deal blew up, or someone got screwed.
Every M&A deal has a qualitative and a quantitative dimension. The quantitative side is the model—purchase price, structure, debt capacity, returns. The qualitative side is everything else: the capabilities, the customers, the culture, the strategic rationale. The goal is to get enough comfort with the numbers that you can let the qualitative upside actually breathe. Because getting a deal done is grueling. There will be days and hours that test your conviction. You need the strategic logic to carry you through when the process tries to grind you down.
A few things I’ve learned the hard way:
Always model three cases—credit, base, and upside. Then haircut the credit case harder than feels reasonable, and do the same with base. It will feel egregious. Do it anyway. I’ve closed deals that were ultimately very successful where years one and two were defined by completely unforeseen external events. Give the deal breathing room. Getting into a cash bind in year one and having to cut costs, reduce indirects, and salvage what’s left is how you torpedo what could have been a transformational outcome.
Structure earnouts around what genuinely worries you. An earnout tied to something arbitrary or indefensible is an easy way to kill a deal—and it should be, because you’ll never be able to explain it with a straight face. The easiest conversations are the truthful ones. If there’s a real risk, you’ll be able to articulate exactly why you structured the deal the way you did. If you can’t, that’s a signal the structure is wrong.
And you can watch the structure behave before you propose it. Arcvue prices the earnout at every threshold and every performance level you might end up defending, against your own combined projections and the covenants you already carry—so the version you put on the table is one you have already seen go wrong.