The Estimation of M&A Synergies: A New Approach

Merger and acquisition synergies are not a black box: they can be deconstructed, triangulated, and simulated to assess the odds that an acquirer is about to overpay for a target. We discuss three classic techniques of synergy estimation and introduce a novel one: incremental economic value added-the only method that can accurately gauge by how much a specific bidder can improve the performance of a prospective target. We illustrate how to combine the four techniques via simulation by examining AmerisourceBergen's bid in 2014 to acquire Profarma, a Brazilian drug wholesaler. (c) 2019 Wiley Periodicals, Inc.