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  1. 016A merger promises Rs 100 crore of pre-tax cost synergies at full run-rate: half in year 1 and all of it from year 2. Achieving them costs Rs 150 crore once, in year 1. Tax is 25% and the market capitalises after-tax earnings at 8x. Roughly what are the synergies worth today?Deal mathsHardNomuraNew York · 2026

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    Roughly what are the synergies worth?

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    About Rs 450 crore. At full run-rate the synergies add Rs 75 crore of after-tax earnings, which the market capitalises at 8x: Rs 600 crore. Two things the headline ignores come off. Year 1 delivers only half, a shortfall of Rs 37.5 crore after tax, and the one-off cost of Rs 150 crore is Rs 112.5 crore after its tax saving.

    Why can you not just multiply Rs 100 crore by 8?

    A shop owner expects a new supplier to cut her costs by Rs 1 lakh a year. Before celebrating, she has to pay tax on the extra profit, wait for the new contract to start, and pay the one-off cost of switching. A synergy is worth the after-tax earnings it adds, capitalised, less everything it costs to achieve and every rupee that arrives late. The 8x multiple applies to after-tax earnings, so the pre-tax Rs 100 crore first becomes Rs 75 crore at 25% tax, and 75 x 8 is Rs 600 crore.

    From the headline to what the synergies are worth, Rs crorenot this:pre-tax saving,after-tax multiple800Pre-tax x 8the headline600After tax x 875 a year x 8-37.5Year-1 shortfall50 x (1 - 25%)-112.5Cost to achieve150 x (1 - 25%)450Worth todayroughly450 = (800 - 50 - 150) x (1 - 25%)
    The pre-tax headline of Rs 800 crore overstates the synergies: after tax the run-rate is worth Rs 600 crore, and taking off the after-tax year-1 shortfall of Rs 37.5 crore and integration cost of Rs 112.5 crore leaves about Rs 450 crore.

    What comes off the Rs 600 crore?

    Two things. Phasing: the market value assumes the full run-rate, but year 1 delivers only half, so Rs 50 crore of pre-tax savings, Rs 37.5 crore after tax, never arrive. Cost to achieve: Rs 150 crore of severance, systems work and site closures, assumed tax deductible, so it costs Rs 112.5 crore after tax. Net of phasing and the cost to achieve, the synergies are worth about Rs 450 crore, a quarter less than the after-tax figure and 44% less than the pre-tax headline.

    The relationship
    V=100×0.75×8⏟600−50×0.75⏟37.5−150×0.75⏟112.5=450V = \underbrace{100 \times 0.75 \times 8}_{600} - \underbrace{50 \times 0.75}_{37.5} - \underbrace{150 \times 0.75}_{112.5} = 450
    100 x 0.75 x 8run-rate synergies after 25% tax, capitalised at 8x
    50 x 0.75the half of year 1's savings that does not arrive, after tax
    150 x 0.75the one-off cost to achieve, after its tax saving
    What it says in wordsCapitalise the after-tax run-rate, then subtract the after-tax value of the savings that arrive late and the cost of getting them.

    What does this rough answer leave out?

    Three refinements, each worth naming. The year-1 items fall a year from now, so discounting them would trim the deductions slightly. The 8x assumes the market gives synergies the same multiple as the core earnings, while in practice cost synergiesSavings from combining two businesses, such as closing duplicate offices or merging purchasing. earn more credit than revenue synergies and both are discounted for execution risk. The deductibility of integration costs is an assumption to confirm for the jurisdiction. The answer to give is the method and Rs 450 crore, then one line on which assumption you would test first.

    The number matters because it caps what a buyer can sensibly pay away. A premium above roughly Rs 450 crore hands the target's shareholders more than the whole value the deal creates, before any risk that the savings slip.

    Where candidates lose it

    The common slip is Rs 800 crore: a pre-tax saving multiplied by a multiple meant for after-tax earnings. Interviewers hear it constantly, because announcements usually quote synergies before tax.

    The second slip is stopping at Rs 600 crore. The question gave you a phasing schedule and a cost to achieve for a reason; both come off, and the cost comes off after tax.

    What the interviewer asks next

    • If the buyer pays a Rs 500 crore premium for the target, is the deal worth doing on these synergies alone?
    • How would you value Rs 100 crore of revenue synergies at a 20% EBITDA margin?
    • Why do markets often give cost synergies more credit than revenue synergies?

    Asked at Nomura, Investment Banking, New York, 2026 (Wall Street Oasis): Asked about what synergies were in a merger and in-depth questions about how my experiences