Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

Itisimportantatthisstagethatwekeepthevalueofsynergy
apart fromthe valueof control,which isthe otherwidely
cited reason for acquisitions. The value of control is the
incrementalvaluethatanacquirerbelievescanbecreatedby
runningatargetfirmmoreefficiently.Tovaluecontrol,we
justrevaluethetargetfirmwithadifferentand presumably
bettermanagementinplaceandcomparethisvaluetotheone
weobtainwiththestatusquo—existingmanagementinplace.
While we will not consider the value of control in this
chapter, Chapter 13 examines it in detail.
2 Table15.1summarizestheeffectsofsynergyandcontrolin
valuing a target firm for an acquisition.

TABLE 15.1Valuing an Acquisition

ComponentValuation Guidelines

Synergy

Valuethecombinedfirmwithsynergybuiltin.

This may include:

• Highergrowthrateinrevenues:growth
  synergy


• Highermargins,becauseofeconomies
  of scale


• Lower taxes, because of tax benefits:
  tax synergy


• Lower cost of debt:financing synergy


• Higherdebtratiobecauseoflowerrisk:
  debt capacity
  Subtract the value of the target firm (with
  controlpremium) + valueof thebiddingfirm
  (preacquisition). This is the value of the
  synergy.