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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

  2. 047A deal is agreed at a fixed exchange ratio of 0.5 acquirer shares for each target share, when the acquirer trades at Rs 200. Before closing, the acquirer's shares fall 10%. What do target holders now receive, and how would a fixed-price structure have differed?Deal mathsHardElite boutique IBPrivate equity

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    Under the fixed ratio, what is a target share now worth?

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    Under the fixed ratio, target holders receive Rs 90 of value per share instead of Rs 100. They still get 0.5 acquirer shares, but each is now worth Rs 180. Under a fixed price they would still receive Rs 100, and the acquirer would issue 100 over 180, about 0.556 shares per target share, 11.1% more than planned. A fixed ratio shares the price risk with the target; a fixed price keeps it with the acquirer and its shareholders.

    What does each structure actually fix?

    Think of agreeing to swap your car for 50 grams of gold, rather than for Rs 5 lakh paid in gold. If the gold price falls before the swap, the first deal still hands you 50 grams, now worth less; the second hands you more grams so that you still get Rs 5 lakh. A fixed exchange ratioThe number of acquirer shares paid for each target share in a stock deal. fixes the number of shares the target receives; a fixed price fixes their rupee value, and the share count moves instead. Whichever number floats carries the risk of the acquirer's share price between signing and closing.

    After a 10% fall: who absorbs it depends on what the deal fixedFixed exchange ratio10090Value per targetshare, Rs0.5000.500Acquirer sharesper target shareFixed price100100Value per targetshare, Rs0.5000.556Acquirer sharesper target shareGrey: as signed at Rs 200. Coloured: after the fall to Rs 180.Fixed ratio: the target bears the fall in value.Fixed price: the acquirer issues 11.1% more shares.
    After the acquirer falls from Rs 200 to Rs 180, a fixed ratio still pays 0.5 shares, now worth Rs 90 per target share, while a fixed price still pays Rs 100 by issuing 0.556 shares per target share, 11.1% more than planned.

    How do the two structures play out across the whole deal?

    Assume the target has 10 crore shares and the acquirer 50 crore. Fixed ratio: target holders receive Rs 900 crore of value instead of Rs 1,000 crore, and own 5 crore of 55 crore shares, 9.1% of the combined company. Fixed price: they still receive Rs 1,000 crore, so the acquirer issues 5.56 crore shares, 11.1% more than planned, and the target's holders own 10.0%. The acquirer's existing shareholders give up more of the company to pay the same rupees.

    Per target share unless statedFixed ratioFixed price
    Acquirer shares received0.5000.556
    Value at Rs 180Rs 90Rs 100
    New acquirer shares, crore5.005.56
    Target holders' share of the combined company9.1%10.0%
    With 10 crore target shares and 50 crore acquirer shares, the fixed ratio leaves target holders with Rs 90 a share and 9.1% of the combined company, while the fixed price gives them Rs 100 a share and 10.0%.

    Which side wants which, and how do bankers split the difference?

    A target worried that the acquirer's shares will fall wants a fixed price; an acquirer worried about issuing too many shares wants a fixed ratio. A collar is the usual compromise: in one common form the ratio is fixed while the acquirer's price stays inside a band and the value is fixed outside it, so each side carries the risk only up to a point. Interviewers ask this to see whether you think about who carries risk between signing and closing, not just the headline value.

    Where candidates lose it

    Candidates say target holders still get Rs 100, because that was the headline price. A fixed ratio never promised rupees, only shares, and the shares are now worth less.

    The second miss comes under the fixed price: saying nothing changes. The acquirer must issue 11.1% more shares, so its own shareholders absorb the fall through extra dilution.

    What the interviewer asks next

    • The acquirer's shares rise 10% instead. Which structure would the target have preferred?
    • Design a collar that protects the target against falls of more than 10%.
    • Why might an acquirer with a volatile share price prefer to pay cash?
  3. 095A sponsor bought a company at 8x EBITDA of Rs 100 crore, funded with Rs 480 crore of debt. It exits at 9x EBITDA of Rs 130 crore with Rs 300 crore of debt still outstanding. What is the MOIC, and how much of the equity gain came from EBITDA growth, multiple expansion and debt paydown?Deal mathsHardElite boutique IBPrivate equity

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    Which source contributed least to the equity gain?

    Show the worked solution

    MOIC is 2.72x: equity grows from Rs 320 crore to Rs 870 crore. Of the Rs 550 crore gain, EBITDA growth contributes 240 (30 x 8x), multiple expansion 130 (one turn on 130), and debt paydown 180 (480 - 300). The three add exactly to 550. Over five years that would be an IRR of about 22%, though the question gives no holding period.

    How do you get entry and exit equity quickly?

    Equity is what is left of the business's value after the debt. Entry: 8 x 100 is an enterprise value of 800, less 480 of debt, so the sponsor put in 320. Exit: 9 x 130 is 1,170, less 300 of debt, leaving 870. MOIC is exit equity over entry equity, 870 / 320 = 2.72x. Say both enterprise values out loud before subtracting debt, so the interviewer can follow each step.

    Why split the gain into three sources?

    Think of a house you bought, renovated and sold. Your profit came partly from adding a room, partly from the neighbourhood getting more popular, and partly from paying down the mortgage. Only the first is a skill you can repeat on the next house. Attribution shows which part of the return came from the sponsor's own work and which came from the market, which is what investors in the fund want to know. EBITDA growth and debt paydown come from running the business; multiple expansion mostly comes from market conditions at exit.

    Where the sponsor's Rs 550 crore gain came from320Entry equity+240EBITDA growth+130Multiple 8x to 9x+180Debt paid down870Exit equityEntry: 8 x 100 - 480 = 320Exit: 9 x 130 - 300 = 870MOIC 870 / 320 = 2.72xGrowth is valued at the entry multiple; the multiple change is applied to exit EBITDA, so it includes the 30 cross term.
    Entry equity of Rs 320 crore grows by 240 from EBITDA growth, 130 from the multiple rising one turn and 180 from debt repaid, reaching Rs 870 crore, so more than three quarters of the gain came from operations and deleveraging rather than the multiple.
    The relationship
    ΔE=(130−100)×8⏟240+(9−8)×130⏟130+(480−300)⏟180=550\Delta E = \underbrace{(130-100)\times 8}_{240} + \underbrace{(9-8)\times 130}_{130} + \underbrace{(480-300)}_{180} = 550
    (130 - 100) x 8EBITDA growth valued at the entry multiple
    (9 - 8) x 130multiple expansion applied to exit EBITDA
    480 - 300debt repaid from the business's cash flow
    What it says in wordsThe equity gain is growth at the old multiple, plus the new multiple's lift on the new EBITDA, plus debt repaid.

    Say the convention. The growth and multiple pieces share a cross term: 30 of extra EBITDA times one extra turn, which is 30. Here it sits inside multiple expansion. Value growth at the exit multiple instead and growth becomes 270 while multiple expansion falls to 100. The total does not change, but the story does, so state which order you used.

    Where candidates lose it

    The common error is forgetting debt paydown, because it is not a change in value of the business. Candidates find 240 and 130, get 370, and cannot reconcile to the 550 gain.

    The second loss is quoting an IRR without a holding period. MOIC needs no time; IRR does. Ask, or state the assumption, before giving a percentage.

    What the interviewer asks next

    • What is the IRR if the holding period is three years instead of five?
    • What happens to the MOIC if the exit multiple falls back to 8x?
    • Which of the three sources would a fund's investors value most, and why?