Cookie and Privacy Settings

This website uses cookies to enable essential functions like the user login and sessions. We also use cookies and third-party tools to improve your surfing experience on preplounge.com. You can choose to activate only essential cookies or all cookies. You can always change your preference in the cookie and privacy settings. This link can also be found in the footer of the site. If you need more information, please visit our privacy policy.

Data processing in the USA: By clicking on "I accept", you also consent, in accordance with article 49 paragraph 1 sentence 1 lit. GDPR, to your data being processed in the USA (by Google LLC, Facebook Inc., LinkedIn Inc., Stripe, Paypal).

Manage settings individually I accept
expert
Expert with best answer

Francesco

100% Recommendation Rate

3,372 Meetings

14,122 Q&A Upvotes

USD 449 / Coaching

4

Synergies - M&A Case

Hi there,

I would like to dig a bit deeper into finding synergies for M&A cases. It can be both, general rules of thumb but also details - or a hint to a good paper. What are good approaches to dig deeper if just the income statement of both companies are given?

Many thanks

Hi there,

I would like to dig a bit deeper into finding synergies for M&A cases. It can be both, general rules of thumb but also details - or a hint to a good paper. What are good approaches to dig deeper if just the income statement of both companies are given?

Many thanks

4 answers

  • Upvotes
  • Date ascending
  • Date descending
Best Answer
Book a coaching with Francesco

100% Recommendation Rate

3,372 Meetings

14,122 Q&A Upvotes

USD 449 / Coaching

Hi Anonymous,

I would always start with a theoretical approach before the actual analysis of the income statement. A potential structure could be the following:

Revenue synergies:

  • Increase price
    • Increase the single price of the product
    • Apply price discrimination
  • Volume increase
    • Increase number of customers (eg marketing or distribution)
    • Increase amount per customer (eg discounts or loyalty program)

Cost synergies

  • Decrease cost per unit (eg renegotiate with supplier)
  • Decrease number of units (eg higher efficiency)

Best,
Francesco

Hi Anonymous,

I would always start with a theoretical approach before the actual analysis of the income statement. A potential structure could be the following:

Revenue synergies:

  • Increase price
    • Increase the single price of the product
    • Apply price discrimination
  • Volume increase
    • Increase number of customers (eg marketing or distribution)
    • Increase amount per customer (eg discounts or loyalty program)

Cost synergies

  • Decrease cost per unit (eg renegotiate with supplier)
  • Decrease number of units (eg higher efficiency)

Best,
Francesco

Book a coaching with Vlad

97% Recommendation Rate

406 Meetings

11,397 Q&A Upvotes

USD 239 / Coaching

Hi,

For Synergies Calculationyou can use the following structure:

  1. Revenue synergies - here you calculate the synergies in price and quantity (depending on the case it may be new geographies, new products, new distribution channels, bigger share on shelves crosselling opportunities, etc.)
  2. Cost synergies - typically you use a value chain structure tailored to the industry (e.g. supply-production-distribution-marketing-after sales support)
  3. Risks - major risks that can decrease the synergies (tip: don't underestimate the merging companies culture factor)
  4. Total synergies potential in $, adjusted by risk (probability of failure)

You can find a lot of this in P&L and by asking additional questions.

In private equity interviews, the cases will be much more detailed in financial part. Depending on the company you'll need to:

  • Find the relevant information in P&L and Balance sheet
  • Do the simplified valuation using NPV: calculate cash flows and make assumptions about growth rate and discount rate
  • Do the valuation using comps - you'll have to explain which comps you will use and why

Good luck!

Hi,

For Synergies Calculationyou can use the following structure:

  1. Revenue synergies - here you calculate the synergies in price and quantity (depending on the case it may be new geographies, new products, new distribution channels, bigger share on shelves crosselling opportunities, etc.)
  2. Cost synergies - typically you use a value chain structure tailored to the industry (e.g. supply-production-distribution-marketing-after sales support)
  3. Risks - major risks that can decrease the synergies (tip: don't underestimate the merging companies culture factor)
  4. Total synergies potential in $, adjusted by risk (probability of failure)

You can find a lot of this in P&L and by asking additional questions.

In private equity interviews, the cases will be much more detailed in financial part. Depending on the company you'll need to:

  • Find the relevant information in P&L and Balance sheet
  • Do the simplified valuation using NPV: calculate cash flows and make assumptions about growth rate and discount rate
  • Do the valuation using comps - you'll have to explain which comps you will use and why

Good luck!

Here is the categorization for revenue and cost synergies

Revenue Synergies

  • Patents:
  • Complementary products:
  • Complementary geographies and customers

Cost Synergies

  • Shared Information Technology:
  • Supply Chain Efficiencies:
  • Improved Sales and Marketing:
  • Research and Development: E
  • Lower Salaries and Wages:
  • Patents

Here is the categorization for revenue and cost synergies

Revenue Synergies

  • Patents:
  • Complementary products:
  • Complementary geographies and customers

Cost Synergies

  • Shared Information Technology:
  • Supply Chain Efficiencies:
  • Improved Sales and Marketing:
  • Research and Development: E
  • Lower Salaries and Wages:
  • Patents

Hey anonymous,

If you get the income statements of both companies you should then try to look for synergies across all the items there (both in revenue and cost). That said, it completely depends case by case, as sometimes the rationale is to boost synergies on revenues (cross sell), some other times on cutting costs (eg, duplicates HR, systems, distribution channels)

The best way to approach this cases is through a critical reasoning of the industry and companies involved so that you can get at least an hypothesis on why they are merging (this should sound natural for you after practicing some of theses cases)

best

Bruno

Hey anonymous,

If you get the income statements of both companies you should then try to look for synergies across all the items there (both in revenue and cost). That said, it completely depends case by case, as sometimes the rationale is to boost synergies on revenues (cross sell), some other times on cutting costs (eg, duplicates HR, systems, distribution channels)

The best way to approach this cases is through a critical reasoning of the industry and companies involved so that you can get at least an hypothesis on why they are merging (this should sound natural for you after practicing some of theses cases)

best

Bruno

Related case(s)

General Holding

Solved 44.6k times
General Holding Our client is a French holding company with annual revenues of about €1 billion.      Their portfolio consists of different companies that are mostly in manufacturing industries such as the oil & gas industry and the automotive industry.They do not have a specific investment focus. They prefer to buy the best companies available that are also related to their existing businesses. They are thinking about acquiring an auto parts dealer, OTOpart, and want to know whether you think it is a good idea.
4.3 5 1537
| Rating: (4.3 / 5.0) |

Our client is a French holding company with annual revenues of about €1 billion. Their portfolio consists of different companies that are mostly in manufacturing industries such as the oil & gas industry and the automotive industry.They do not have a specific investment focus. They prefer to ... Open whole case

Chip equity

Solved 37.1k times
Chip equity Our client is an electronics holding called Chip’n’Chip. They want to invest in a Printed Circuit Board (PCB) manufacturer called OnBoard, and asked you whether it’s going to be a good investment. How would you help them?
4.5 5 1294
| Rating: (4.5 / 5.0) |

Our client is an electronics holding called Chip’n’Chip. They want to invest in a Printed Circuit Board (PCB) manufacturer called OnBoard, and asked you whether it’s going to be a good investment. How would you help them? Open whole case

Paper Print

Solved 15.9k times
Paper Print A printing company is planning to take over another printing company with similar technology and printing machines. The candidate is supposed to evaluate the acquisition by answering a line of questions that are presented in the “suggested approach” section.
4.2 5 350
| Rating: (4.2 / 5.0) |

A printing company is planning to take over another printing company with similar technology and printing machines. The candidate is supposed to evaluate the acquisition by answering a line of questions that are presented in the “suggested approach” section. Open whole case

SuperBurger

Solved 14.3k times
SuperBurger Our client is SuperBurger, a fast food chain that operates in the same class as McDonalds, Wendy's, Burger King and so on. They're the fourth largest fast food chain worldwide in terms of number of stores in operations. SuperBurger owns some of its stores, but 85% of its stores are owned by franchisees. As part of its growth strategy, the company has analyzed some potential acquisition targets including Tasty Donuts which is a growing doughnut producer active in the US and internationally.  The client asked us to help him decide whether he should acquire the company or not. 
4.0 5 1214
| Rating: (4.0 / 5.0)

Our client is SuperBurger, a fast food chain that operates in the same class as McDonalds, Wendy's, Burger King and so on. They're the fourth largest fast food chain worldwide in terms of number of stores in operations. SuperBurger owns some of its stores, but 85% of its stores are owned by franchis ... Open whole case

REA Reinsurance

Solved 11.8k times
REA Reinsurance Your client, REA, is a reinsurance company. REA recently acquired another reinsurance company (approximatively same size): the choice of this company was notably based on its product portfolio as well as its market presence which appeared complement with REA. However, the acquisition is not well received by the market. The acquisition price is considered too high and the transaction has not been well graded. REA management asks you to evaluate the transaction.
4.1 5 957
| Rating: (4.1 / 5.0)

Your client, REA, is a reinsurance company. REA recently acquired another reinsurance company (approximatively same size): the choice of this company was notably based on its product portfolio as well as its market presence which appeared complement with REA. However, the acquisition is not well r ... Open whole case