valuation with pre and post tax cashflows

#Valuation with pre and post tax cashflows download#

Debt to capital ratio: EV weighted-average debt to capital ratio of both firms.Tax rate: EV weighted-average tax rate of both firms.Pre-tax cost of debt: EV weighted-average pre-tax cost of debt of both firms.Estimate the levered beta for the combined firm using the debt to equity ratio of the combined firm.Estimate the unlevered beta for the combined firm by taking an enterprise-value weighted average.Estimate the unlevered betas for both the target and acquiring companies.The combined firm’s financial metrics are calculated as follows:.The model will be driven by the variables described above. Enter the inputs for both the target and acquiring companies.The worksheet default contains sources for the base assumptions, using the US 10-year Treasury rate as a proxy for the risk-free rate and the US risk premium from Enter the assumptions for the risk-free rate and the risk premium.

#Valuation with pre and post tax cashflows download#

The Synergy Valuation Excel Model enables you – with the beta, pre-tax cost of debt, tax rate, debt to capital ratio, revenues, operating income (EBIT), pre-tax return on capital, reinvestment rate and length of growth period – to compute the value of the global synergy in a merger.Įnter your name and email in the form below and download the free template now! Using the Financial Synergy Valuation Worksheet And lastly, diversification may reduce the cost of equity, especially if the target is a private or closely held firm. Second, a larger company may be able to incur more debt, reducing its overall cost of capital. In terms of tax benefits, an acquirer may enjoy lower taxes on earnings due to higher depreciation claims or combined operating loss carryforwards. Functional Integration : When a firm with strengths in one functional area acquires another firm with strengths in a different functional area, the potential synergy gains arise from specialization in each respective functional area.įinancial synergies refer to an acquisition that creates tax benefits, increased debt capacity and diversification benefits.Vertical Integration: Cost savings from controlling the value chain more comprehensively.Horizontal Integration: Economies of scale, which reduce costs, or from increased market power, which increases profit margins and sales.Types of operating synergies to value include: Furthermore, operating synergies can result in economies of scale, allowing the acquiring company to save costs in current operations, whether it be through bulk trade discounts from increased buyer power, or cost savings by eliminating redundant business lines. Operating synergies create strategic advantages that result in higher returns on investment and the ability to make more investments and more sustainable excess returns over time. Synergy can be categorized into two forms: operating synergy and financial synergy. Learn More on M&A Modeling Course Types of Synergies There are two main types, operating synergy and financial synergy, and this guide will focus on the latter. The primary source of synergy in an acquisition is in the presumption that the target firm controls a specialized resource that becomes more valuable if combined with the acquiring firm’s resources. When a company acquires another business, it is often justified by the argument that the investment will create synergies.