All cases
Set a ceiling for a distribution acquisition premium
Value acquisition synergies · Fictional case
The situation
The buyer expects a ₹12 crore annual after-tax saving starting next year, flat forever, at a 10% discount rate. Integration costs ₹35 crore at closing. The seller asks for a ₹100 crore premium.
Your task
Does modeled synergy cover the premium?
Reveal step-by-step solution
Set up the problem
Gross synergy PV = ₹12 ÷ 0.10 = ₹120 crore.
Work through the numbers
Net synergy PV = ₹120 − ₹35 = ₹85 crore.
Interpret the result
The ₹100 crore premium exceeds modeled synergy by ₹15 crore. This assumes the standalone value is already fair.
What to remember
Discount realized incremental savings and deduct integration costs before comparing with the premium.