An acquisition pro forma combines buyer and target results on a comparable basis and applies transaction assumptions. Distinguish combined annual earnings, closing-year results, and purchase funding.
1. Keep historical results and adjustments visible
Consider a fictional buyer with $30 million of annual revenue and $6 million of EBITDA. The target reports $10 million of revenue and $2 million of EBITDA. Proposed target addbacks total $300,000, producing $2.3 million of adjusted EBITDA. All amounts below are in millions of dollars.
| Annual view | Buyer | Target | Combined |
|---|---|---|---|
| Revenue | 30.00 | 10.00 | 40.00 |
| Reported EBITDA | 6.00 | 2.00 | 8.00 |
| Proposed addbacks | — | 0.30 | 0.30 |
| Adjusted EBITDA before synergies | 6.00 | 2.30 | 8.30 |
Document each addback: amount, period, explanation, support, and any replacement cost. Removing an owner's salary without including a replacement manager can overstate earnings. Do not remove recurring costs without a supported reason.
2. Separate the closing year from a full-year view
Assume a July 1 closing and even monthly earnings. The target contributes six months: $5 million of revenue and $1.15 million of adjusted EBITDA. Added to the buyer's full year, the closing-year view is $35 million of revenue and $7.15 million of adjusted EBITDA before synergies.
The $40 million revenue and $8.3 million EBITDA annual view includes twelve months of both businesses. Label the period explicitly. For a seasonal business, use monthly actuals and forecasts; dividing annual earnings by twelve can distort the buyer's ownership period.
3. Show synergies as a separate assumption
Suppose the plan identifies $500,000 of annual cost savings, with 50% realization assumed. That adds $250,000 to the full-year scenario, taking adjusted EBITDA to $8.55 million. Applied evenly over six owned months, it adds $125,000 in the closing year, taking EBITDA to $7.275 million before deal costs.
This case assumes immediate, constant savings. Hiring, contract termination, or systems migration may require a monthly ramp. Include integration costs, lost revenue, and added overhead. Exclude savings already reflected in historical earnings from incremental synergies.
4. Bridge enterprise value to the funding need
At seven times the target's $2.3 million adjusted EBITDA, implied enterprise value is $16.1 million. Enterprise value describes the operating business valuation; the seller's equity proceeds also depend on cash, existing debt, and the agreed closing adjustments.
Assume a cash-free, debt-free purchase with no working-capital adjustment or rollover equity, so purchase consideration equals enterprise value. Add $400,000 of transaction costs and subtract $10 million of new acquisition debt: required buyer equity is $6.5 million. Transaction costs remain a cash use even when excluded from recurring adjusted EBITDA.
At 8% interest on $10 million of constant new debt, incremental annual interest is $800,000, or $400,000 for six months. Interest sits below EBITDA. EBITDA after interest is not net income or cash flow.
For reporting context, the SEC's acquisition disclosure guide distinguishes transaction accounting adjustments from optional management adjustments for synergies and dis-synergies.