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Synergy estimator

Estimates revenue and cost synergies for an M&A deal using both a bottom-up build (cross-sell, pricing, overlap elimination, procurement, shared services) and top-down benchmarking against comparable transactions, then…

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Purpose

Convert acquirer and target profiles into a defensible synergy estimate — revenue and cost, bottom-up and top-down triangulated — with a year-by-year realization schedule, one-time costs to achieve, and a net synergy NPV that an investment committee can underwrite. Solves the problem of synergy numbers that are either hand-waved into the deal model or too aggressive to survive diligence.

When to Use

Invoke this skill when the user asks to:

  • Estimate revenue and cost synergies for a potential acquisition
  • Build a synergy case or synergy model for a deal under evaluation
  • Pressure-test or sanity-check a target's synergy assumptions before IC
  • Benchmark expected synergies against comparable transactions
  • Justify a control premium with quantified synergy value
  • Build a phased synergy realization schedule with costs to achieve

Inputs Required

Before starting, collect:

  • Acquirer profile: Revenue, EBITDA/margin, cost structure, geographies, customer base, key products
  • Target profile: Revenue, EBITDA/margin, cost structure, geographies, customer base, key products
  • Strategic rationale: Why this deal — the 2–3 sentence thesis (scale, cross-sell, market entry, capability)
  • Overlap map: Where the two businesses overlap (customers, functions, facilities, vendors, geographies)
  • Deal economics: Purchase price / enterprise value and target's standalone EBITDA
  • Comparable deals: Any known synergy benchmarks from prior M&A in the sector (optional)
  • Integration constraints: Timeline, regulatory limits, retention risks, systems complexity (optional)

If comparable deals or integration constraints are missing, apply sector default benchmarks (cost synergies typically 3–8% of combined cost base; revenue synergies 1–4% of combined revenue) and flag the assumption explicitly.

Instructions

Step 1: Establish the Synergy Baseline

Anchor the estimate before building.

  • Combined revenue base = acquirer revenue + target revenue
  • Combined addressable cost base = combined operating costs excluding COGS pass-through where relevant
  • Top-down guardrail: Cost synergies rarely exceed 5–10% of the target's cost base in strategic deals, or 3–8% of combined costs in scale deals; revenue synergies rarely exceed 2–4% of combined revenue and take longer to realize. Note these ceilings — any bottom-up build exceeding them requires justification.

Step 2: Build Revenue Synergies (Bottom-Up)

Estimate three revenue synergy categories. For each, state the mechanism, the addressable base, the capture rate, and the annual run-rate value.

Revenue Synergy 1 — Cross-Sell / Up-Sell

  • Mechanism: Sell acquirer products into target's customers and vice versa
  • Method: Addressable customer base × attach rate × average deal size × gross margin
  • Realistic capture: 5–15% attach over 2–3 years; discount for channel conflict and sales ramp

Revenue Synergy 2 — Pricing / Bundling

  • Mechanism: Combined offering supports pricing uplift or premium bundles
  • Method: Affected revenue × realistic price uplift % (typically 1–3%) × retention factor
  • Flag price-elasticity and churn risk explicitly

Revenue Synergy 3 — Market / Geographic Expansion

  • Mechanism: Acquirer's product enters target's markets (or channels), or combined scale unlocks new segments
  • Method: New addressable market × penetration ramp × margin
  • Apply a longer realization curve (years 2–4) and a higher risk discount

Sum to a gross revenue synergy run-rate, then apply a realization discount (typically 40–60% haircut on year-1 revenue synergies) to reflect execution risk.

Step 3: Build Cost Synergies (Bottom-Up)

Estimate three cost synergy categories with function-level specificity.

Cost Synergy 1 — Overlap / Headcount Elimination

  • Mechanism: Remove duplicate roles in G&A, overlapping sales, redundant leadership, and consolidated back office
  • Method: FTE count in overlapping functions × fully loaded cost × elimination %
  • Typical: 20–40% of overlapping G&A; near-zero in customer-facing frontline unless coverage is redundant

Cost Synergy 2 — Procurement / Supplier Consolidation

  • Mechanism: Combined purchasing volume lowers unit cost on shared vendors and categories
  • Method: Addressable spend × negotiated savings % (typically 3–10% by category)
  • Requires supplier overlap — do not apply savings to non-overlapping spend

Cost Synergy 3 — Shared Services / Facilities / Systems

  • Mechanism: Consolidate real estate, IT platforms, shared functions, and vendor contracts
  • Method: Duplicate facility/systems cost × consolidation % + contract rationalization
  • Note IT integration often adds cost before it saves

Sum to a gross cost synergy run-rate. Cost synergies are generally higher-confidence than revenue synergies — apply a lighter haircut (10–25%).

Step 4: Triangulate Bottom-Up vs. Top-Down

  • Compare the bottom-up total against the top-down benchmark ceilings from Step 1 and against any comparable deals provided
  • If bottom-up exceeds the top-down guardrail, either identify the specific driver that justifies the outperformance or revise down
  • Present a conservative / base / optimistic range, not a single point

Step 5: Phase the Realization Schedule

Build a Year 0 through Year 3 run-rate ramp.

  • Cost synergies: typically 30–50% realized in Year 1, 70–85% by Year 2, full run-rate by Year 3
  • Revenue synergies: slower — 10–25% Year 1, 40–60% Year 2, full run-rate Year 3–4
  • Express as % of run-rate achieved per year and the resulting annual EBITDA contribution

Step 6: Estimate One-Time Costs to Achieve (CTA)

Every synergy has a cost to unlock it.

  • Severance / restructuring: eliminated FTEs × severance multiple
  • Systems integration: ERP/CRM migration, one-time IT
  • Facility exit / lease breakage
  • Advisory, retention bonuses, and change management
  • Rule of thumb: CTA often runs 0.5x–1.5x of Year-1 run-rate synergies; phase CTA in Years 0–2

Step 7: Net Synergy Value

  • Compute annual net synergy EBITDA = phased run-rate synergies − CTA in that year
  • Discount to a net synergy NPV (state the discount rate used; default 10% WACC if unspecified)
  • Express synergy value as % of purchase price and as an EBITDA multiple of synergy run-rate for IC framing

Output Format

  • Structure: Narrative build followed by two schedules — a synergy summary table (category × conservative/base/optimistic) and a phased realization table (Year 0–3 × run-rate, CTA, net)
  • Length: 1,000–1,400 words plus tables
  • Format: Structured document with tables for the schedules; bulleted mechanism detail per synergy category
  • Sections: Baseline & guardrails → Revenue synergies → Cost synergies → Top-down triangulation → Phased realization schedule → One-time costs to achieve → Net synergy value & IC framing
  • Tone: Corporate development analyst — quantitative, skeptical, willing to haircut aggressive assumptions; every number tied to a mechanism and a capture rate

Quality Checklist

Before delivering output, verify:

  • [ ] All six synergy categories are estimated (3 revenue, 3 cost), each with mechanism + base + capture rate
  • [ ] Bottom-up total is explicitly triangulated against the top-down benchmark ceiling
  • [ ] Revenue synergies carry a heavier haircut and slower ramp than cost synergies
  • [ ] One-time costs to achieve are quantified and phased — not omitted
  • [ ] The phased schedule spans Year 0–3 with % of run-rate realized per year
  • [ ] Net synergy value is expressed as NPV, as % of purchase price, and with the discount rate stated
  • [ ] A conservative / base / optimistic range is provided — not a single point estimate

Notes

  • Cost synergies are almost always more credible than revenue synergies; when a deal case leans heavily on revenue synergies to justify price, flag it as the primary risk
  • The single most common overstatement is applying procurement savings to non-overlapping spend — always constrain to the shared vendor base
  • Integration dis-synergies (customer churn, attrition of key talent, distraction) are real; if retention risk is flagged in inputs, net a dis-synergy allowance against gross synergies
  • For IC framing, the most persuasive metric is synergy value as a % of purchase price — it tells the committee how much of the premium the synergies must fund

How to use this skill

This file is a Claude Code skill in Anthropic's standard format — markdown with YAML frontmatter at the top.

Installing in Claude Code:

  • ~/.claude/skills/<folder-name>/SKILL.md — auto-loads in every session anywhere on your machine (recommended for skills you'll use across multiple projects)
  • <your-project>/.claude/skills/<folder-name>/SKILL.md — auto-loads only when working in that project (recommended for project-specific skills)

Restart Claude Code or open a new session to register.

Using in Claude.ai, ChatGPT, Gemini, or other AI tools:

  1. Drag this file into a new chat, or copy and paste its contents
  2. Send your task or request as your next message — the AI will apply the skill where it fits

For Claude Code skill details: https://docs.anthropic.com/en/docs/claude-code/skills