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Module V· Premium / ROIC / Value Creation AnalysisIntermediate
Question

How do synergies affect acquisition ROIC, and what is the synergies-required-to-justify-premium test?

Answer

Synergies increase post-deal NOPAT and therefore acquisition ROIC. The synergies-required test solves for the level of after-tax synergies needed for acquisition ROIC to reach WACC or a target hurdle. If required synergies exceed credible synergy estimates, the premium is hard to justify.

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