Deal Lab · Buyout model 1.0
Merck & Co., Inc. Buyout Model
A buyout of Merck & Co., Inc. on its published figures for the last 4 quarters to Q2 FY2026, in US dollars: revenue flat, the margin and the shares of revenue of that period, entry and exit at 10.0x EBITDA, exit after 5 years.
Returns
Internal rate of return
4.0%
Multiple of money
1.22x
Sponsor's equity
$79.8bn
Enterprise value
$148bn
Proceeds at exit
$97.1bn
Sources and Uses
| Uses | Amount |
|---|---|
| Equity price | $100bn |
| Borrowings refinanced | $53.9bn |
| Transaction costs | $3.0bn |
| Financing fees | $1.5bn |
| Minimum cash | $1.3bn |
| Uses | $160bn |
| Sources | Amount |
|---|---|
| Senior loan | $54.7bn |
| Subordinated notes | $18.2bn |
| Cash of the company | $7.1bn |
| Sponsor's equity | $79.8bn |
| Sources | $160bn |
Projection
| Closing | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|---|
| Revenue | $66.6bn | $66.6bn | $66.6bn | $66.6bn | $66.6bn | $66.6bn |
| EBITDA of the case | $14.8bn | $14.8bn | $14.8bn | $14.8bn | $14.8bn | $14.8bn |
| Cash cost of leases | $423m | $423m | $423m | $423m | $423m | $423m |
| Depreciation and amortisation | $6.7bn | $6.7bn | $6.7bn | $6.7bn | $6.7bn | |
| Capital expenditure | $4.2bn | $4.2bn | $4.2bn | $4.2bn | $4.2bn | |
| Increase in working capital | $0 | $0 | $0 | $0 | $0 | |
| Interest | $5.8bn | $5.5bn | $5.2bn | $4.9bn | $4.6bn | |
| Tax | $473m | $547m | $624m | $705m | $791m | |
| Cash available for debt service | $9.7bn | $9.6bn | $9.6bn | $9.5bn | $9.4bn |
Debt Schedule
| Closing | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|---|
| Senior loan | $54.7bn | $50.8bn | $46.7bn | $42.4bn | $37.8bn | $33.0bn |
| Subordinated notes | $18.2bn | $18.2bn | $18.2bn | $18.2bn | $18.2bn | $18.2bn |
| Revolving facility | $0 | $0 | $0 | $0 | $0 | $0 |
| Cash | $1.3bn | $1.3bn | $1.3bn | $1.3bn | $1.3bn | $1.3bn |
| Debt to EBITDA | 5.00x | 4.74x | 4.46x | 4.17x | 3.86x | 3.54x |
| EBITDA to interest | 2.54x | 2.67x | 2.83x | 3.01x | 3.23x |
Covenants and the Credit View
| Closing | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
|---|---|---|---|---|---|---|
| Limit of debt to EBITDA | 6.50x | |||||
| Lease-adjusted debt to EBITDA | 5.00x | 4.74x | 4.46x | 4.17x | 3.86x | 3.54x |
| Band of debt to EBITDA | Highly leveraged | Aggressive | Aggressive | Aggressive | Significant | Significant |
Return Bridge
| Amount | |
|---|---|
| Sponsor's equity | $79.8bn |
| EBITDA growth | $0 |
| Change of multiple | $0 |
| Net debt repaid | +$21.7bn |
| Non-controlling interests | $0 |
| Costs at closing | −$4.4bn |
| Management and limited liability | $0 |
| Proceeds at exit | $97.1bn |
Sensitivity Tables
| Entry by exit | 8.00x | 9.00x | 10.0x | 11.0x | 12.0x |
|---|---|---|---|---|---|
| 8.00x | 6.3% | 10.4% | 14.0% | 17.2% | 20.0% |
| 9.00x | 0.8% | 4.9% | 8.5% | 11.6% | 14.4% |
| 10.0x | −3.3% | 0.6% | 4.0% | 7.0% | 9.7% |
| 11.0x | −6.6% | −2.8% | 0.4% | 3.3% | 5.9% |
| 12.0x | −9.3% | −5.7% | −2.5% | 0.3% | 2.9% |
| Debt by growth | −4.0% | −2.0% | 0.0% | 2.0% | 4.0% |
|---|---|---|---|---|---|
| 4.00x | −1.5% | 1.5% | 4.4% | 7.1% | 9.8% |
| 4.50x | −2.3% | 1.0% | 4.2% | 7.2% | 10.1% |
| 5.00x | −3.2% | 0.5% | 4.0% | 7.3% | 10.4% |
| 5.50x | −4.4% | −0.2% | 3.7% | 7.4% | 10.8% |
| 6.00x | −6.0% | −1.0% | 3.4% | 7.5% | 11.3% |
Solvers
Highest entry multiple for a return of 20.0%
3.40x
The target return
Revenue growth a year for a return of 20.0%
10.5%
The target return
Debt capacity at closing, times EBITDA
6.00x
The loan to value limit
Assumptions and Their Origins
| Group | Assumption | Value | Origin |
|---|---|---|---|
| Transaction | Entry multiple | 10.0x | Convention of buyout 1.0 |
| Transaction | Years to exit | 5 years | Convention of buyout 1.0 |
| Transaction | Transaction costs | 2.0% | Convention of buyout 1.0 |
| Transaction | Financing fees | 2.0% | Convention of buyout 1.0 |
| Transaction | Minimum cash, of revenue | 2.0% | Convention of buyout 1.0 |
| Financing | Debt at closing, times EBITDA | 5.00x | Convention of buyout 1.0 |
| Financing | Debt at most, of the enterprise value | 60.0% | Convention of buyout 1.0 |
| Financing | Senior loan, of the new debt | 75.0% | Convention of buyout 1.0 |
| Financing | Senior loan repaid each year | 1.0% | Convention of buyout 1.0 |
| Financing | Cash sweep | 100% | Convention of buyout 1.0 |
| Financing | Revolving facility, times EBITDA | 1.00x | Convention of buyout 1.0 |
| Financing | Base rate | 3.9% | Policy rate of the United States, BIS central bank policy rates, 20 October 2026 |
| Financing | Senior loan spread | 3.5% | Convention of buyout 1.0 |
| Financing | Subordinated notes spread | 6.0% | Convention of buyout 1.0 |
| Financing | Revolving facility spread | 3.0% | Convention of buyout 1.0 |
| Financing | Covenant headroom on debt to EBITDA | 30.0% | Convention of buyout 1.0 |
| Financing | Minimum EBITDA to interest | 2.00x | Convention of buyout 1.0 |
| Operations | Revenue growth a year | 0.0% | Convention of buyout 1.0 |
| Operations | EBITDA margin | 22.3% | EBITDA over revenue, last 4 quarters to FY2026 Q2 |
| Operations | Cash cost of leases, of revenue | 0.6% | Cash cost of leases over revenue, last 4 quarters to FY2026 Q2 |
| Operations | Depreciation and amortisation, of revenue | 10.1% | Depreciation and amortisation over revenue, last 4 quarters to FY2026 Q2 |
| Operations | Capital expenditure, of revenue | 6.3% | Median capital expenditure over revenue, fiscal 2023 to 2025 |
| Operations | Working capital, of revenue | 22.4% | Working capital over revenue, end of the last 4 quarters to FY2026 Q2 |
| Operations | Leases as debt | Yes | Leases as debt, the basis of the credit metrics |
| Operations | Share-based pay added back | No | Convention of buyout 1.0 |
| Taxes | Tax rate | 25.5% | Combined statutory rate of corporate income tax of the United States, OECD Corporate Tax Statistics, 2026 |
| Taxes | Interest deducted up to 30% of EBITDA | No | Convention of buyout 1.0 |
| Exit | Exit multiple | 10.0x | Convention of buyout 1.0 |
| Exit | Management share of the proceeds | 0.0% | Convention of buyout 1.0 |
| Exit | Target return | 20.0% | Convention of buyout 1.0 |
Inputs and Their Documents
Published figures of the last 4 quarters to Q2 FY2026, each with the documents it comes from.
| Input | Value | Method | Documents |
|---|---|---|---|
| Adjusted EBITDA | $15.7bn est. | Adjusted EBITDA of the company page | 10-Q 2025-06, 10-Q 2025-09, 10-K 2025-12, 10-Q 2026-03, 10-Q 2026-06 |
| Share-based pay | $892m | Share-based pay that adjusted EBITDA adds back | 10-Q 2025-06, 10-Q 2025-09, 10-K 2025-12, 10-Q 2026-03, 10-Q 2026-06 |
| EBITDA after share-based pay | $14.8bn est. | Adjusted EBITDA less share-based pay | 10-Q 2025-06, 10-Q 2025-09, 10-K 2025-12, 10-Q 2026-03, 10-Q 2026-06 |
| Depreciation and amortisation | $6.7bn | Depreciation and amortisation of adjusted EBITDA | 10-Q 2025-06, 10-Q 2025-09, 10-K 2025-12, 10-Q 2026-03, 10-Q 2026-06 |
| Revenue | $66.6bn | Revenue of the base period | 10-Q 2025-09, 10-K 2025-12, 10-Q 2026-03, 10-Q 2026-06 |
| Operating lease cost | $423m est. | Operating lease cost | 10-K 2025-12 |
| Borrowings | $53.9bn | Total debt less lease liabilities | 10-K 2025-12, 10-Q 2026-06 |
| Lease liabilities | $1.2bn est. | Lease liabilities | 10-K 2025-12 |
| Cash and short-term investments | $7.1bn | Cash and short-term investments | 10-Q 2026-06 |
| Non-controlling interests | $51.0m | Non-controlling interests | 10-Q 2026-06 |
| Receivables | $12.6bn | Receivables | 10-Q 2026-06 |
| Payables | $3.8bn | Payables | 10-Q 2026-06 |
| Inventories | $6.2bn | Inventories | 10-Q 2026-06 |
| Capital expenditure | $4.1bn | Capital expenditure of the latest fiscal year | 10-K 2025-12 |
Checks of the Model
- Sources equal uses
- The equity price is above nil
- The sponsor's equity is above nil
- Each balance of debt stays between nil and its amount at closing
- Cash is the cash of the year before and the cash flow of the year
- Cash stays at the minimum unless a shortfall is stated
- The 6 parts of the bridge add up to the proceeds less the sponsor's equity
- The cash flows at the internal rate of return have a present value of nil
Deal Lab computes arithmetic on published figures and on the assumptions of the user. It values no company, recommends no transaction and forecasts no result.