Build an M&A Model - Microsoft Acquires Activision Blizzard

Overview This M&A modeling practice case is based on Activision Blizzard (ATVI) in early 2023, after the acquisition announcement by Microsoft but before the deal closed. At this stage, ATVI continues to operate as a standalone company, while the market prices in the expected completion of the transaction. The acquisition represents one of the largest transactions in the technology and gaming industry. For the purpose of this exercise, we assume the real transaction terms: a $95 per share purchase price and a 100% cash consideration structure. These assumptions allow us to realistically bridge standalone financial modeling with a live acquisition scenario, similar to how investment banks evaluate announced deals prior to closing. ATVI operates in the interactive entertainment and gaming industry, generating revenue primarily from digital gaming content. Performance is driven by user engagement cycles, content release timing, and platform dynamics typical of the sector. Under Microsoft’s acquisition rationale, the strategic value of ATVI also includes ecosystem expansion across gaming platforms, subscription services, and long-term content integration. During the period between announcement and close, ATVI attracted significant strategic acquisition interest, reflecting both its strong cash flow profile and its importance within Microsoft’s broader gaming strategy. This makes it an ideal case study for M&A-driven DCF modeling, where valuation is built from a standalone perspective but interpreted through a real-world transaction lens. Through this exercise, you will learn how operating assumptions translate into valuation outputs. You will project a full 3-statement model for both ATVI and MSFT, build a standalone DCF for ATVI, and ultimately integrate both companies into a full M&A model that reflects the acquisition structure. This workflow simulates the end-to-end investment banking process, connecting standalone operating performance, intrinsic valuation, and transaction-level analysis. It also illustrates how market pricing, strategic acquisition rationale, and intrinsic valuation interact in real-world M&A decision-making. Learning Goals Develop an end-to-end understanding of how operational drivers translate into long-term valuation through a full 3-statement and DCF model. Learn how to convert accounting earnings into Unlevered Free Cash Flow (UFCF) by incorporating non-cash items, capital expenditures, and working capital dynamics. Understand how capital structure and financing assumptions bridge Enterprise Value to equity value, particularly in a cash acquisition structure led by Microsoft. Apply WACC to discount future cash flows and evaluate time value of money in valuation. Understand how valuation is benchmarked using Trading Comparables, and how relative valuation differs from intrinsic valuation and acquisition pricing. Build intuition for how assumptions around growth, margins, reinvestment, and strategic synergies (especially under Microsoft ownership) drive overall company valuation. Key Concepts Revenue Growth and Operating Margins: Core drivers of ATVI’s operating performance. EBITDA, EBIT, and NOPAT: Key profitability metrics used to derive cash flow. Unlevered Free Cash Flow: Cash flows available to all capital providers independent of capital structure. Working Capital: Modeling operational cash needs tied to revenue growth and business scale. WACC: Discount rate reflecting cost of equity and debt adjusted for risk and tax effects. Trading Comparables: Valuing ATVI relative to peer gaming companies using EV/Revenue and EV/EBITDA multiples. Enterprise Value vs. Equity Value: Understanding how operating value translates into shareholder value under Microsoft’s acquisition structure. Fully Diluted Shares Outstanding: Adjusting for options and dilution to compute per-share valuation. Accretion: The increase in the acquirer’s EPS following a transaction. Dilution: The decrease in the acquirer’s EPS following a transaction. Pro Forma EPS: EPS adjusted for transaction effects such as financing structure, synergies, and purchase accounting adjustments including D&A. Sources of Funds: The financing inputs for an acquisition, including cash, debt, and equity used to fund the transaction. Uses of Funds: The application of capital in the transaction, including purchase consideration, transaction fees, and debt repayment.

Practice Build an M&A Model - Microsoft Acquires Activision Blizzard with interactive Excel modeling exercises in our M&A Modeling module.

This hands-on modeling exercise helps you master Build an M&A Model - Microsoft Acquires Activision Blizzard through real-world Excel practice and financial modeling techniques.