An acquirer wants Lekhvik Legal Tech, which has Rs 60 crore of revenue at EBITDA break-even. With Rs 25 crore of cost synergies and Rs 15 crore of revenue synergies at a 40% margin, phased in over two years at a 15% discount rate, what is the most it should pay, and where would you anchor as the seller's adviser?

The buyer's ceiling is about Rs 373 crore, and I would anchor near Rs 300 crore. Lekhvik is worth Rs 180 crore alone. Phased cost synergies are worth about Rs 156 crore today and revenue synergies about Rs 37 crore. Rs 300 crore claims about three quarters of the cost savings and none of the revenue synergies, which leaves the buyer Rs 73 crore of value and a reason to say yes.

A neighbour who wants to knock two flats into one will pay more for yours than any outside buyer, because the combined flat is worth more than two separate ones. But the neighbour will not pay away all of that extra value, or there is no point doing it. The buyer's ceiling is the target's standalone value plus the present value of the synergiesExtra profit the combined company earns that neither would earn alone, from shared costs or cross-selling.; pay more than that and the buyer's own shareholders lose. The seller's job is to claim a share of the synergies without assuming all of them.

The revenue synergy is Rs 15 crore of sales at a 40% margin, so Rs 6 crore of profit. Each stream pays half in year one and the full amount every year after. Discounting at 15%, the cost savings are worth about Rs 155.8 crore and the revenue synergies about Rs 37.4 crore, Rs 193.2 crore in all. The year-two-onward stream is a perpetuity, the annual amount divided by 15%, then discounted one year because it starts a year out.

Anchor on the synergies the buyer controls. Rs 300 crore is standalone value plus about 77% of the cost savings, and it asks for nothing on revenue synergies, which the buyer's team will discount anyway. It is high enough to leave room to concede, and defensible line by line: every rupee above Rs 180 crore points at a saving the buyer's own team named. A more realistic landing zone is between Rs 258 crore, half the cost savings, and Rs 300 crore.

Say the limit out loud. The ceiling assumes every saving arrives and lasts forever; ignoring phasing alone would push it to Rs 387 crore, which is why sellers like to quote the unphased number. Integration costs, customer churn during the merger and tax would all lower it. The seller's adviser should also check for a second bidder: without competition, the buyer has little reason to share more than a slice of cost savings.