Guide

You're the CEO of a manufacturer in a supply chain of processors, manufacturers, and retailers. You keep your job for as long as your company stays independent and your board stays patient. Over 20 quarters, grow your margins and your growth, buy companies when the deal is right, and keep your stock too expensive for rivals to buy you.

The field

Materials flow from processors (aluminum, steel, plastic, ceramics) to manufacturers (home heaters/AC, appliances, furnishings, recreational goods) to retailers, who sell to customers in four regions: North, East, South, and West. Each tier has between 3 and 9 companies, and every game's field is drawn from its seed — replay a seed to face exactly the same market again.

Fewer competitors in a tier means higher prices for that tier: a monopoly charges 20% more than a crowded tier of nine. Price rises are passed down the chain, so consolidating your own tier lifts your own margins.

But high margins attract new competitors. When a tier's margins run above 12%, or it's down to two owners, a small newcomer may enter at the end of a quarter — taking some business from the incumbents and bringing prices back down. Newcomers show on the deal wire, and they're targets too.

Demand grows at a different rate in each region and product, and every company can only make as much as its production staff allow. Wages rise 0.5% every quarter, so a company that stands still sees its margins slowly squeezed.

How the game ends

You survive

Still independent and in office after 20 quarters. You're ranked by total shareholder return — your share price against the $20 every company starts at.

You own the whole supply chain

Buy every other company and the game ends at once — there's nobody left to compete with or to buy you.

You step down as market leader

If antitrust blocks every deal between you and anyone else — you can't buy, and nobody can buy you — you may end your tenure there, ranked on your return that day, or play on.

A rival acquires you

Your shareholders accept any bid at or above your company's asking premium. You can't refuse it — your only defense is making sure the bid never comes.

Your board fires you

With 3 warnings outstanding and returns below the industry average.

Whichever way it ends, a debrief shows your share price over the game, every acquisition you made, and what the game taught.

What makes a good deal

A good acquisition needs all three, not any one alone:

• Revenue synergies — customers you can sell to that you didn't have before.
• Expense synergies — duplicate overhead you can consolidate.
• An attractive price — the synergies are worth more than the premium you pay.

The deal room checks all three for any company you might buy, and marks your discipline line: the premium at which the synergies exactly pay for it. Winning a bidding war above that line isn't winning. Letting a rival overpay is often the better move.

Your moves each quarter

Make any of these before you end the quarter — or open the deal room to buy a company.

Invest in revenue

Spend cash to hire sales and production staff who win new business — 50% of it orders taken from rivals, 50% new customers for your goods. The first $1M wins about $1M a year of revenue; returns halve once you've invested 10% of your annual revenue. The new staff's wages are an ongoing cost.

Cut overhead

Lay off executives and corporate staff at $0.05M severance each — each saves a year of wages worth twice that. You can't cut below 60% of your tier's normal overhead.

Buy back shares

At the market price, up to 10% of your shares a quarter. Cash adds nothing to your company's value, so returning it lifts your share price — about $1 for every $1 spent.

Borrow or repay

See Borrowing.

A yardstick for every dollar: a buyback returns about $1 per $1. An investment is worth its added profit times your multiple — worth it while it returns more than your earnings yield (one over your multiple). An acquisition is worth its synergies less the premium.

How your stock is priced

multiple     = 5 × (1 + 2 × margin) × (1 + 5 × growth) ÷ (1 + 0.05 × debt ÷ operating profit)
market value = profit × multiple     (at least 0.2 × revenue)
share price  = market value ÷ shares

• Margin is profit over revenue for the last four quarters, counted from 0% to 25%.
• Growth is this year's profit against last year's, counted from 0% to 15% a year.
• Debt makes earnings riskier, so it lowers the multiple.
• Moves are priced at once. When a deal, a cost cut, or an investment changes your profit for good, the market restates your past results as if it had always been so — the price moves now, and the change never counts as growth.

Where your return comes from

Your total shareholder return (TSR) is how far your share price has moved from the $20 every company starts at. No company pays dividends, so the price is the whole return. Because share price is profit × multiple ÷ shares, the return has three parts, and they multiply:

1 + TSR = (profit now ÷ profit then) × (multiple now ÷ multiple then) × (shares then ÷ shares now)

• Profit. Synergies, cost cuts and investments that win business raise it. Losing orders to rivals, new staff's wages and interest on debt lower it.
• Multiple. Higher margins and faster growth raise it; debt lowers it. Growth counts only while profit keeps rising — a one-time step up is priced at once, and doesn't count as growth.
• Shares. Buybacks shrink the count, so each remaining share owns more of the profit. Paying for a company in stock issues new shares, so the deal must add more profit than the shares it dilutes.

For example: profit up 20%, the multiple from 6× to 7×, and a quarter of the shares bought back gives 1.20 × 1.17 × 1.33 ≈ 1.87 — a TSR of +87%. (A loss-making company is valued at its revenue floor instead, and the parts stop applying.)

You're ranked against every company still independent at the end — the ones bought along the way drop out. Watch all three parts: a company whose profit stands still can still rank high by returning its cash through buybacks, and a company that grows profit by issuing shares can go nowhere.

Your stock is your currency

Acquirers pay in stock or cash, never a mix. Paying in stock means issuing new shares. A rival will only buy you if the deal doesn't dilute its earnings: your earnings plus the synergies it expects, per dollar it pays, must be at least 95% of its own earnings yield. So the higher your multiple, the more expensive you are to buy — for any rival, however big. That's your defense: out-earn and out-grow the field and you stay too expensive.

The valuation view shades the danger zone: rivals trading above your multiple × 1.3 × 0.95 could buy you without any synergies at all.

Synergies

Expense synergy

Overhead matched region by region — two offices in the same region — is 50% eliminable; the smaller company's unmatched overhead, 10% (one board, one CEO).

Revenue synergy (same tier)

10% of the smaller company's revenue × the share of your customer relationships you don't already share, won from rivals as far as your spare capacity allows. But a buyer that would get more than 60% of its purchases from the combined company moves the excess to your rivals — if they have room.

Vertical synergy (a supplier or customer)

25% of the supplier's margin on the trade already flowing between you.

On the geographic map, the Employees lens shows where companies' people work (overlap there is overhead you can consolidate), and the Customers lens where their revenue comes from (overlap there is revenue you already have). The best targets overlap on the first and not the second.

Making an offer

• You offer a premium over the target's market value. The benchmark is 30%; each target's board has its own hidden asking premium within 10 points of it. Offer less and it's rejected.
• Any offer is public. A rejected one puts the company in play, and rivals take notice.
• A rival may counter 5 points higher. Raise by at least that much, or walk away — a rival still leading when the quarter ends buys the company.
• Rivals walk away at random, more often the nearer they get to what they think the company is worth to them. They judge synergies through their own noisy estimates, so they sometimes overpay.
• A cash offer uses your cash and the target's, and borrows the rest against your own credit line. A stock offer issues new shares at your current price.
• Shareholder vote: a stock offer that issues 20% or more of your shares needs your shareholders' approval — and they vote down a deal that fails any of the three tests or dilutes your earnings by more than 5%. For big deals, build up cash and credit.
• Antitrust: regulators block a deal that would give one owner more than 40% of a tier's revenue where both companies already compete. Buying a supplier or customer doesn't count against you.

Rumors and takeover threats

Every bid is preceded by a rumor on the deal wire, one quarter ahead. A rumor means a rival is considering a deal: next quarter it checks again, and bids only if the deal still passes its rules — otherwise the rumor fades. When the rumor names you (in red), you have that quarter to make the re-check fail: raise your multiple, spend idle cash, cut costs. When it names someone else, you can pre-empt the rival by bidding first.

Borrowing

You can borrow up to 3× your annual operating profit (profit before interest). Rates float on all your debt with your leverage:

Debt ÷ operating profit	Rating	Rate
up to 1×	A	6.5%
1–2×	BBB	8.0%
2–3×	BB	10.0%

Borrowed money sitting idle lowers your share price — you pay interest, and debt lowers your multiple. Borrow to buy, not to hold.

Your board

From quarter 3, your board warns you when you pass up an obvious good move for 2 quarters running: idle cash, a deal that clearly passes all three tests, bloated overhead, a high-return investment — or at once, if a rival is circling and you do nothing. It also rebukes a deal that overpays or dilutes your earnings. It warns at most once a quarter, never acts for you, and forgets a warning once you've fixed the problem (or after 4 quiet quarters). 3 warnings with below-average returns, and you're fired.

Reading the screen

• Deal wire: when you end a quarter or make an offer, the news it sets off — rumors, bids, deals, and your board's warnings — pops up over the board and fades. Point at it to keep it open. Items about you are red; click a company to open its deal room.
• Your figures: share price, multiple, margin and growth, cash and credit with your credit rating, and your return and rank.
• Board patience: your warnings out of 3, red when your returns are below average. Point at it to read the warnings again.
• The field: the supply chain, the geographic map (with its two lenses), the valuation landscape, and a table of every company. Click any company for its deal room.
• Your moves: the four levers down the right. Once you've bought a company, Invest in revenue and Cut overhead have a Company picker: companies you buy need managing too, and your cash pays for it. A company's deal room opens in the levers' place; "Your moves" brings them back.

Mergers and acquisitions, in this game

The game is built on the ideas in Steffen Parratt's book The Disciplined Model: a good acquisition needs revenue synergies, expense synergies, and an attractive price together; a company's stock is its currency, so a high valuation is both a weapon and a shield; and the benchmark for any deal is what the same money would earn in your own business — or returned to your shareholders.

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