Build a Synergy & Integration Model
This guide explains how to layer synergy and integration effects onto a post acquisition model in Model Reef. The focus is on quantifying net value creation from cost savings, revenue uplift and integration spend.
Before you start
What you will build
Dedicated synergy variables for:
Cost savings.
Revenue uplift.
Integration cost variables.
A net synergy view visible in P&L, Cash Waterfall and valuation.
You can implement this either in the combined model or, for comparison, in a separate synergy scenario model.
Define synergy categories and timing
Common synergy categories:
Cost synergies:
Headcount reduction.
Premises consolidation.
Vendor and procurement savings.
Revenue synergies:
Cross sell or upsell between customer bases.
Pricing power.
Integration costs:
Redundancies.
System migrations.
Advisory and consulting fees.
For each synergy type, decide:
Start date.
Ramp up profile (immediate, phased over time).
Level of uncertainty.
Create synergy variables
In the combined model, you can choose to:
Place synergy variables in a dedicated Synergies branch.
Or place them directly in Buyer and Target branches where they apply.
For cost synergies:
Create Opex or Staff variables with negative values to represent savings, or adjust existing cost variables downward via formulas.
Example naming:
Synergy - Staff Reduction - Back Officeas a Staff or Opex variable with negative values.
For revenue synergies:
Create Revenue variables for incremental revenue.
Link them to drivers such as cross sell rates or new conversion assumptions.
Ensure that naming makes synergy variables easy to identify and audit.
Create integration cost variables
Integration costs are usually modelled as Opex or one off items.
Create Opex variables for each major integration program, for example:
Integration - IT Systems Migration.Integration - Redundancy Costs.
Set timing:
Start and end dates aligned with the integration plan.
Decide tax treatment for these costs via tax configuration or variable classification.
These costs will reduce P&L and cashflows in the early post acquisition years.
Review net synergy in P&L and Cash Waterfall
To understand net synergy:
Compare the combined model without synergies to the synergy enhanced model.
In the synergy enhanced model:
Evaluate year by year incremental EBITDA and NPAT versus the baseline.
Review the Cash Waterfall to:
See incremental FCFF and FCFE.
Understand when integration spend flips into net savings.
You can construct a custom report or external comparison table showing:
Gross synergies.
Integration costs.
Net synergy impact per year.
Link synergies to valuation
With synergy variables active:
Open the Valuation section and examine:
Change in NPV versus baseline.
Change in IRR or Money Multiple.
Calculate the value of synergies as:
NPV with synergies minus NPV without synergies.
This highlights how much of the acquisition value is supported by synergy assumptions.
Build alternative synergy scenarios
Because scenarios are separate models, create models for:
Low synergies case.
Base synergies case.
High synergies case.
In each:
Vary synergy size and timing.
Keep integration cost assumptions realistic.
Compare these models to understand risk that comes from under delivering on synergies.
Check your work
Synergy variables are clearly tagged and separate from baseline operations.
Integration costs are explicitly modelled and not overlooked.
The net effect on EBITDA, NPAT and cash is believable and consistent with operational plans.
Valuation uplift from synergies is clearly quantifiable and not excessive relative to deal price.
Troubleshooting
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