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?
Aut quod quos est sapiente sed qui sequi. Aut quia aut est voluptas ducimus. Similique inventore consectetur officia distinctio aut porro et. Qui culpa ipsum harum aut dicta incidunt. Accusantium aut asperiores delectus qui consequuntur ratione.
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...