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.