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CMA Final · Strategic Performance Management and Business Valuation · Valuation in Mergers and Acquisitions

In valuing a target company for an acquisition, the 'synergy value' of the deal is best defined as:

Synergy value equals the value of the combined entity less the sum of the separate stand-alone values of acquirer and target. It captures the incremental value created by the merger, such as cost savings or revenue gains, rather than any price premium or book value difference.

  1. AValue of the combined firm minus the sum of the stand-alone values of the acquirer and the targetCorrect
  2. BPrice paid for the target minus the target's book value of net assets
  3. CTarget's market capitalisation minus its stand-alone intrinsic value
  4. DAcquirer's stand-alone value minus the cost of financing the deal

Explanation

Synergy is the extra value created by combining the firms: V(AB) - V(A) - V(B). The other options mix price, book value or financing cost, which do not measure incremental value from the combination.

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