FIG synergies and multiples?
Perhaps the WSO hive mind can help me: I understand that FIG M&A synergies are (with some variance depending on the type of financial institution) typically expressed in terms of non-interest expense.
But if I wanted to capitalize those synergies to estimate their NPV, what multiple would I use? For a non-FIG deal it would be EBITDA (10x EBITDA purchase price, $10m of annual synergies, PV of synergies=$100m), but I never ever see an EBITDA multiple in FIG deals. Eq. Value / TB doesn't work, and PE doesn't work (apples to oranges in both cases).
So if you had to do it, how would you? Thanks in advance.
Could you rephrase so your blocking point becomes a bit clearer?
Generally speaking, we can do one of 2 things;
- Calculate what the after-tax effect of those synergies would be by applying a tax rate. Then apply the a forward P/E multiple on them in the year 100% of synergies are achieved
- Calculate the after-tax synergies and run a mini DCF by discounting at cost of equity
Thanks. That's actually very helpful. Agree a DCF is in theory the best way to do it, but w/ out going to into boring detail re: the exercise at hand, DCFs are highly sensitive to perp/wacc/terminal multiple assumptions, which are inherently subjective (and/or a pain to calc at scale). Forward PE x tax-effected synergies is probably the best bet.
P/E multiple is just a simplified DCF btw
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