Should synergies be included in a standalone valuation, and how does that interact with what a buyer should pay?
An advanced Valuation question — expect it in final rounds and case-heavy interviews (IB, PE, Big-4 Transaction Services).
THE SHORT ANSWER
A standalone (intrinsic) valuation excludes synergies — it values the business as it currently operates, which is the right anchor for a fair value or a 'walk-away' price. Synergies belong in the acquirer's analysis: you value them separately (PV of net cost and revenue synergies, after integration costs and phasing) to understand the maximum a strategic could justify. The negotiating insight is who captures that value: in a competitive auction the seller extracts much of the synergy via the premium, so a disciplined buyer pays standalone plus only the synergies it must to win — not all of them. Paying away 100% of synergies destroys acquirer value, which is a major reason deals disappoint.
WHAT INTERVIEWERS LISTEN FOR
- ✓Standalone value excludes synergies
- ✓Value synergies separately, net of integration cost, phased
- ✓Synergies set the buyer's ceiling, not the price
- ✓Auctions transfer synergy value to the seller via premium
COMMON MISTAKES
- ✗Baking synergies into standalone value
- ✗Paying away all synergies
- ✗Ignoring integration cost/timing
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