EVIDENCE ON SYNERGY—VALUE CREATED AND
ADDED
Intheprecedingsection,weshowedthatsynergycanhave
considerablevalueinmanyacquisitions,eitherbyincreasing
expectedcash flowsor by loweringdiscountrates. Inthis
section,weconsideraquestionthatisjustascriticalfromthe
acquirer’sstandpoint,whichisthepricethatshouldbepaid
for synergy. We beginby looking at theevidence on the
existence of synergy both at the time of the merger
announcementandintheaftermath.Wefollowupbylaying
out aframeworkforassessinghowbest tofairlyshare the
benefits of synergy and where the odds are greatest for
succeeding with a synergy-based acquisition strategy.
Evidence on Synergy
There are two wayswe can evaluate theexistence of the
synergy.Thefirstisonaforward-lookingbasis,bylookingat
marketreactions toacquisitionannouncementsand gauging