Discount Rate on Synergies?
Thanks in advance, WSO hive-mind. Two questions that I'd welcome some input on:
-
When calculating the PV of synergies, how do you arrive at the target and acquiror's blended cost of capital? Weighted by revenue, or weighted by FCF contribution?
-
If a giant company is buying a tiny one, the discount rate on the synergies is going to be only slightly lower than the acquiror's standalone WACC (due to the relatively tiny contribution of rev/FCF from the target). But doesn't that discount rate understate the risk / probability of achieving the synergies?
Veniam cumque dolores non tempore recusandae quia. Et quisquam eligendi laboriosam consequuntur quas officia.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...