Traditional models

The model of Kerler Different assumptions regarding free cash flows, capital costs and

growth rate have to be made. Quantification of the planning values regarding the different kinds of

synergies Evaluation of the expected synergies with the extended DFCF

(Discounted Free Cash-flow)-evaluation1. Independent assessment of the acquisition partners by

discounting the expected cash lows with the particular WACC of the company.

2. Identification of the values of the alliance without consideration of the synergies.

3. Identification of the modified values of the expected cash flow by considering the impact of the potential synergy effects.

Mergers&Acquisitions3.1.6 Traditional models of synergy evaluation

52

Traditional models

The model of Kerler4. The explicit synergy value is calculated by forming the difference

between the value of the alliance with consideration of the synergies and the value of the alliance without consideration ofthe synergies.

Mergers&Acquisitions3.1.6 Traditional models of synergy evaluation

53

10%9%Capital costs (k)

6%4%Expected growth rate (g)

1.500 Mio. 2.000 Mio.EBIT

3.500 Mio. 8.000 Mio. ./. Production costs

5.000 Mio. 10.000 Mio.Turnover

Company BCompany A

Traditional models

Free Cash flow company = EBITx(1-tax rate von 33%)Free Cash flow company A = 2.000x(1-0,33) = 1.340Free Cash flow company B = 1.500x(1-0,33) = 1.005

Stand Alone-Value:Value of the company =

Value of the company A =

Value of the company B =

Value of the alliance without synergy = 54.505Capital costs of the alliance:

Mergers&Acquisitions3.1.6 Traditional models of synergy evaluation

54

633.26)06,01,0(

06,1005.1

872.27)04,009,0(

04,1340.1

1

=

=+gkgFCF

%5,9)633.26872.27(

633.26%10)633.26872.27(

872.27%9 +++=

Traditional models

Expected growth rate of the alliance

Calculated value of the different kinds of synergies: Due to the acquisition, the competition within the sales market is

reduced and market power is created; increase of the turnover: about 1%.

organisational synergies for the production make it possible for the company to reduce its production costs about 3%.

Management synergies make a rise of the growth rate from 5% to 5.2% possible by optimising the investment politics.

Finance synergies allow for a reduction of capital costs from 9.5% to 9.25%.

Mergers&Acquisitions3.1.6 Traditional models of synergy evaluation

55

%5)633.26872.27(

633.26%6)633.26872.27(

872.27%4 +++

Traditional models

Consequently:

Value of the synergy = 69.527-54.717 = 14.810 Mio.

Mergers&Acquisitions3.1.6 Traditional models of synergy evaluation

56

69.527 Mio. 54.717 Mio.Company value

9,25%9,5%Capital costs

5,2%5,0%Expected growth rate

3.883 Mio. 3.500 Mio.EBIT

11.155 Mio. 11.500 Mio.Production costs

15.150 Mio. 15.000 Mio.Turnover

Alliances with synergiesAlliances without synergies