Mergers&Acquisitions

3.1.6 Traditional models of synergy evaluation

The model of Kerler

Different assumptions regarding free cash flows, capital costs and

growth rate have to be made.

Quantification of the planning values regarding the different kinds of

synergies

Evaluation of the expected synergies with the extended DFCF

(Discounted Free Cash-flow)-evaluation
1. Independent assessment of the acquisition partners by
discounting the expected cash lows with the particular WACC of
the company.
2. Identification of the values of the alliance without consideration of
the synergies.
3. Identification of the modified values of the expected cash flow by
considering the impact of the potential synergy effects.

Traditional models

52

Mergers&Acquisitions
3.1.6 Traditional models of synergy evaluation
The model of Kerler
4. The explicit synergy value is calculated by forming the difference
between the value of the alliance with consideration of the
synergies and the value of the alliance without consideration of
the synergies.
Company A
Turnover

Company B

10.000 Mio.

5.000 Mio.

8.000 Mio.

3.500 Mio.

2.000 Mio.

1.500 Mio.

Expected growth rate

(g)

4%

6%

Capital costs (k)

9%

10%

./.
costs

Production

EBIT

Traditional models

53

Mergers&Acquisitions
3.1.6 Traditional models of synergy evaluation
Free Cash flow company
Free Cash flow company A =
Free Cash flow company B =

=
EBITx(1-tax rate von 33%)
2.000x(1-0,33) = 1.340
1.500x(1-0,33) = 1.005

Stand Alone-Value:
Value of the company

Value of the company A

Value of the company B

1+ g
kg
1,04
1 .340
= 27 .872
( 0 ,09 0 ,04 )
1,06
1 .005
= 26 .633
( 0 ,1 0 ,06 )
FCF

Value of the alliance without synergy = 54.505

Capital costs of the alliance:
= 9%

27.872
26.633
+ 10%
9,5%
(27.872 + 26.633)
(27.872 + 26.633)

Traditional models

54

Mergers&Acquisitions
3.1.6 Traditional models of synergy evaluation
Expected growth rate of the alliance

4%

27.872
26.633
+ 6%
5%
(27.872 + 26.633)
(27.872 + 26.633)

Calculated value of the different kinds of synergies:

Due to the acquisition, the competition within the sales market is

reduced and market power is created; increase of the turnover: about
1%.

organisational synergies for the production make it possible for the

company to reduce its production costs about 3%.

Management synergies make a rise of the growth rate from 5% to

5.2% possible by optimising the investment politics.

Finance synergies allow for a reduction of capital costs from 9.5% to

9.25%.

Traditional models

55

Mergers&Acquisitions
3.1.6 Traditional models of synergy evaluation
Consequently:
Alliances without synergies

Alliances with synergies

Turnover

15.000 Mio.

15.150 Mio.

Production costs

11.500 Mio.

11.155 Mio.

3.500 Mio.

3.883 Mio.

Expected growth rate

5,0%

5,2%

Capital costs

9,5%

9,25%

54.717 Mio.

69.527 Mio.

EBIT

Company value

Value of the synergy = 69.527-54.717 = 14.810 Mio.

Traditional models

56