Why 20% for IT cost and 30% for Headquarter cost

REA Reinsurance
New answer on Jan 05, 2021
3 Answers
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kari asked on Dec 31, 2020
EY-Parthenon-Manager |Tailored Case Preparation |Strategy & M&A professional|Open to Limited Discounts|Women Empowerment

Please help with my query . In case of HQ cost 10% was removed from our client and 20% from target which is in line with 30% assumption . But in IT it was only total 20% .

Also of you can explain wht staff cost should not be considered for synergy . Thank you

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Clara
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replied on Jan 02, 2021
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello, can you link the case please?

Cheers,

Clara

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kari on Jan 06, 2021

Dear All - Further clarifying my question . In the case we have taken below assumption :reasonable percentage of costs that can be saved through synergies. 30% would be a good estimation. Now while calculating the Headquarter cost , I see below calculation Headquarter costs Eligible for synergies: Yes! REA: 10% * 4,000,000 = $400,000 Acquired company: 20% * $3,600,000 = $720,000 Total = $1,120,000 (30% = $336,000 for simplification: $350,000). I am taking this as 30 % . But while calculating IT cost I see below calculation T costs Eligible for synergies: Yes! REA: 90% * $4,000,000 * 10% = $360,000 (costs in regions * total cost * share of IT costs) Acquired Company: 80% * $3,600,000 * 10% = $288,000 (Which is 20% ) . Hope this is clear please

kari on Jan 07, 2021

Dear Clara , Attaching link :https://www.preplounge.com/en/management-consulting-cases/interviewer-led-mckinsey-style/advanced/rea-reinsurance-85

Gaurav
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replied on Jan 05, 2021
Ex-Mckinsey|Certified Career Coach |Placed 500+ candidates at MBB & other consultancies

Hello Kari!

Could you please reformulate your question so that we understand how to help you with it?

Cheers,

GB

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kari on Jan 06, 2021

Dear All - Further clarifying my question . In the case we have taken below assumption :reasonable percentage of costs that can be saved through synergies. 30% would be a good estimation. Now while calculating the Headquarter cost , I see below calculation Headquarter costs Eligible for synergies: Yes! REA: 10% * 4,000,000 = $400,000 Acquired company: 20% * $3,600,000 = $720,000 Total = $1,120,000 (30% = $336,000 for simplification: $350,000). I am taking this as 30 % . But while calculating IT cost I see below calculation T costs Eligible for synergies: Yes! REA: 90% * $4,000,000 * 10% = $360,000 (costs in regions * total cost * share of IT costs) Acquired Company: 80% * $3,600,000 * 10% = $288,000 (Which is 20% ) . Hope this is clear please

Ian
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replied on Jan 02, 2021
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Hi Kari,

I'm sorry but your question is very very difficult to follow. What exactly are you asking?

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kari on Jan 06, 2021

Dear All - Further clarifying my question . In the case we have taken below assumption :reasonable percentage of costs that can be saved through synergies. 30% would be a good estimation. Now while calculating the Headquarter cost , I see below calculation Headquarter costs Eligible for synergies: Yes! REA: 10% * 4,000,000 = $400,000 Acquired company: 20% * $3,600,000 = $720,000 Total = $1,120,000 (30% = $336,000 for simplification: $350,000). I am taking this as 30 % . But while calculating IT cost I see below calculation T costs Eligible for synergies: Yes! REA: 90% * $4,000,000 * 10% = $360,000 (costs in regions * total cost * share of IT costs) Acquired Company: 80% * $3,600,000 * 10% = $288,000 (Which is 20% ) . Hope this is clear please

Clara gave the best answer

Clara

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