CMA Final · Strategic Performance Management and Business Valuation · Valuation in Mergers and Acquisitions
In valuing a target for a merger, the acquirer's analyst adds the present value of cost savings and revenue enhancements expected only after the two firms combine to the target's stand-alone value. What is this added amount called?
The added amount is synergy value. It is the present value of benefits such as cost savings and revenue enhancements that arise only from combining the firms, and it is added to the target's stand-alone value to arrive at the maximum price an acquirer could justify.
- ASynergy valueCorrect
- BLiquidation value
- CBook value premium
- DReplacement cost
Explanation
Value that arises only because the two firms operate together, such as cost savings or extra revenue, is synergy. Stand-alone value excludes it. Liquidation value and replacement cost relate to asset-based approaches, not combination benefits.
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