The assessment of the benefits of combining two operations is one of the most common areas where value is over estimated in transactions. There are a number of reasons for this, including:
- It is approached mathematically
- Often the value does not use an appropriate risk adjusted discount rate and in many cases, buyers blend synergies into an overall value of a target, placing an inflated assessment on the value of synergies
- Differences in systems, processes and culture lead to the complexities of integrating being under-estimated: the issue increasing for businesses whose main asset is people.
- Often there is little sense checking with target staff, which can be based on a “we know better” attitude
In short 1 + 1 can equal any number!
TCTM can assist you robustly assess synergies by:
- Linking synergies back to overall strategy
- A rigorous and challenging review of synergy assumptions
- A risk and opportunities based approach, incorporating what if analysis
- Assessing appropriate risk adjusted discount rate(s) to assess synergies
A clear plan with management sign off and ownership of assumptions, with accountability post acquisition