# 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

{% hint style="info" %}
You should have:

* A post acquisition combined model that includes Buyer and Target as branches.
* A clear view of the baseline combined performance without synergies.
* Ideas about where synergies come from and how long they take to realise.

If you have not yet built the combined model, follow **Build an M and A Consolidation Model** first.
{% endhint %}

***

## 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.

***

{% stepper %}
{% step %}

### 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.
  {% endstep %}

{% step %}

### 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 Office` as 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.
{% endstep %}

{% step %}

### 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.
{% endstep %}

{% step %}

### 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.
  {% endstep %}

{% step %}

### 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.
{% endstep %}

{% step %}

### 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.
{% endstep %}
{% endstepper %}

***

## 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

<details>

<summary>Synergies look unrealistically large</summary>

Revisit drivers and ensure that percentage reductions or uplifts are applied to the correct base and ramped in realistically.

</details>

<details>

<summary>Integration costs seem too low</summary>

Compare with benchmarks or similar deals and adjust for realism. Underestimating integration costs is a common bias.

</details>

<details>

<summary>Stakeholders question net value creation</summary>

Use scenario models to show a range of outcomes and explicitly quantify what portion of deal value depends on synergy delivery.

</details>

***

## Related guides

* [Crop Yield Forecasts](/use-cases/agriculture-and-primary-production/crop-yield-forecasts.md)
* [QuickBooks Integration](/help/quickbooks-integration.md)
* [Xero Integration](/help/xero-integration.md)
* [Variables Syntax](/syntax/variables-syntax.md)


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