ACCA AFM Acquisitions: Why Students Get the Percentage Gain Wrong (2026)

ACCA AFM acquisitions questions are valuation questions. Most candidates treat them as theory questions. That's why they drop marks.

The September/December 2025 AFM examiner's report on Halstock Co is blunt: candidates who understood the structure of the calculation earned near-maximum marks. Candidates who didn't — including those who only calculated one of the two required percentage gains — left marks on the table they can't get back. Here's what went wrong and how to fix it.

What the Halstock Co question actually asked

Halstock Co (fitness clubs, high-end market) wanted to acquire Marnhall (low-end market). The owner of Marnhall would accept $160m. The requirement: calculate the percentage gain to Halstock Co's shareholders with and without the expected synergies of $18.6m. Nine marks. Two calculations. Clear structure. The examiner described performance as "very mixed" — some candidates earned full marks, a significant number "did not go any further than the initial present value of cash flow calculations."

Mistake 1: Getting the perpetuity wrong

The cash flows from year 5 onwards were perpetual and the question explicitly stated "all variables after year 4 will remain the same as year 4." That means no growth. Plug in zero growth. Many candidates applied a growth rate anyway — the question data contained growth figures for years 1–4, and candidates assumed those carried forward. They don't. No growth means the year 5+ perpetuity is simply: Year 4 cash flow ÷ discount rate. Then discount that perpetuity back to present value using the year 4 discount factor. Candidates who failed to discount back to today's value — they calculated the perpetuity but forgot it sits at year 4, not year 0 — also lost marks here.

Mistake 2: Mishandling the synergies

The $18.6m synergies were stated as the present value of after-tax synergies. Add them directly to the combined company value. Do not put $18.6m into each year of the cash flow and re-run the NPV calculation. Several candidates did exactly that, inflating the combined value by treating $18.6m as an annual figure rather than a present value total. Others went the opposite direction and ignored the synergies entirely — the examiner noted that "quite a few" candidates produced only one percentage gain figure when two were required (with and without synergies). That's an automatic four or five marks gone before you've written a word of discussion.

Mistake 3: The debt/equity ratio adjustment

After calculating the combined company value, Halstock Co had a debt/equity ratio of 15:85. The question asks for the gain to equity shareholders. So the total combined value must be multiplied by 85% to isolate the equity portion before subtracting the offer price. Candidates who skipped this step were comparing equity gains to a total enterprise value — an apples-to-oranges error that threw out the final percentage gain.

Mistake 4: Using the wrong offer price

The owner of Marnhall stated a price of $160m. The estimated market value of Marnhall was $145.8m. Candidates who used $145.8m instead of $160m were calculating a different question to the one asked — how much gain accrues to Halstock after paying what was actually agreed, not some theoretical market value. Read the scenario. Use the agreed price.

Mistake 5: Giving absolute figures instead of percentages

The requirement says "calculate the percentage gain." Several candidates calculated the gain in dollars and stopped there. The final step: divide the dollar gain by Halstock's initial equity valuation ($210m) and express as a percentage. One mark. One step. Don't skip it.

The correct structure — in order

Step 1: Calculate the present value of combined free cash flows for years 1–4. Step 2: Calculate the year 5+ perpetuity (no growth — the question said so) and discount to year 0 using the year 4 factor. Step 3: Add PV of synergies ($18.6m, already in PV terms). Step 4: Multiply the total by 85% (equity portion using the 15:85 debt/equity ratio). Step 5: Deduct Marnhall's agreed price ($160m) and Halstock's original equity value ($210m). Step 6: Divide by $210m and express as a percentage. Then repeat steps 3–6 without the $18.6m for the "without synergies" figure.

The discussion marks — don't ignore them

Part (b) asked for concerns the non-executive directors might raise about the calculations. Five marks. The examiner was clear: candidates who challenged specific assumptions from the scenario — for example, questioning whether Marnhall's low-price customer base would accept revenue increases — earned good marks. Candidates who listed generic concerns without linking them to the scenario numbers scored poorly. The $18.6m synergy figure is a forecast. The projected revenue increase for the combined business is an estimate. The Marnhall market is price-sensitive — a fact in the scenario that better candidates used to earn scepticism marks.

What to do now

Work through the Halstock Co published solution on the ACCA Practice Platform. Build the five-step structure above until it's automatic. Then find any other AFM acquisitions question — Section C of the syllabus will test this in almost every exam sitting. The examiner's report on Halstock Co closed with an observation that applies to every AFM acquisitions question: "it is therefore essential that question practice is part of a candidate's preparation." The structure is learnable. The marks are available. The candidates who earned them had simply done this before.