Purpose
Convert a qualitative "this deal makes sense" thesis into a defensible, phased synergy estimate — sizing each revenue and cost synergy line, timing when it lands, and netting out the one-time cost to achieve it — so corporate development and PE teams can price the deal, set integration targets, and pressure-test the model before the board.
When to Use
Invoke this skill when the user asks to:
- Size or model synergies for a specific acquisition target
- Justify or defend a purchase price with synergy value
- Build the synergy case for an investment committee or board deck
- Identify where cost and revenue synergies actually exist in a deal
- Set post-merger integration (PMI) value-capture targets by year
- Compare two potential targets on synergy potential
Inputs Required
Before starting, collect:
- Acquirer profile: Revenue, gross margin, headcount, primary segments, geographies, cost structure
- Target profile: Revenue, gross margin, headcount, primary segments, geographies, standalone cost base
- Strategic rationale: The core thesis — why this deal (scale, capability, market entry, roll-up, etc.)
- Customer/product overlap: Where the two companies share customers, channels, or product adjacencies
- Cost overlap: Duplicated functions — corporate overhead, real estate, systems, procurement spend
- Deal parameters: Purchase price or EV/EBITDA multiple, target close date, integration budget if known
- Constraints: Regulatory limits, retention risks, contractual lock-ins, or "must-not-touch" areas
If margin, cost-structure detail, or integration budget is missing, apply industry-standard benchmarks and flag every assumption explicitly.
Instructions
Step 1: Frame the Synergy Baseline
Establish the combined-entity starting point before sizing any synergy:
- State combined revenue and combined cost base as the denominator
- Anchor total synergy expectation to deal-type benchmarks: cost synergies typically run 5–15% of the smaller company's cost base (higher in overlapping horizontal deals, lower in adjacencies); revenue synergies are real but discount them harder — they land later and hit rates are lower
- Note the acquirer's realistic delivery credibility (first-time acquirer vs. serial integrator) — this scales the achievable percentage
Step 2: Size Revenue Synergies
Work through each revenue lever. For every line, state the mechanism, the sizing math, and a hit-rate haircut.
Cross-sell / up-sell
- Mechanism: sell acquirer products into target's base and vice versa
- Sizing: (relevant customer count) × (attach rate assumption) × (average deal size) × (gross margin)
- Haircut: apply a 20–40% realization discount — cross-sell almost always underperforms plan
Pricing / packaging
- Mechanism: reduced competition, bundling power, or list-price harmonization
- Sizing: (addressable revenue base) × (net price uplift %) — keep uplift conservative (1–3%) unless clear pricing power exists
- Flag regulatory/antitrust exposure on any pricing-power synergy
New market / channel access
- Mechanism: use target's geography, channel, or license to sell acquirer's offering (or reverse)
- Sizing: (target market size) × (realistic share capture over 3 years) × (margin)
- These land slowest — phase primarily to Years 2–3
Retention / churn reduction
- Mechanism: combined offering increases stickiness and reduces attrition
- Sizing: (revenue at risk) × (churn-point improvement) × (margin)
Step 3: Size Cost Synergies
Work through each cost lever with the same discipline. Cost synergies are more reliable — but still phase them.
Overhead / SG&A consolidation
- Mechanism: eliminate duplicated corporate functions (finance, HR, legal, IT leadership, redundant executive roles)
- Sizing: (duplicated FTE count) × (fully loaded cost) — reference typical 5–15% of target SG&A
- Note severance as cost-to-achieve, not savings
Procurement / supplier leverage
- Mechanism: combined volume unlocks better pricing on shared spend categories
- Sizing: (overlapping addressable spend) × (savings rate 3–8% by category)
Facilities / footprint
- Mechanism: consolidate offices, warehouses, plants, data centers
- Sizing: (redundant facility cost) net of lease-break and exit costs
- Constrained by lease terms — phase to when leases expire or breaks are economic
Systems / technology rationalization
- Mechanism: retire duplicate platforms (ERP, CRM, tooling); consolidate licenses
- Sizing: (duplicated license + maintenance + support cost) — but migration cost is heavy CTA and delays realization
COGS / operational efficiency
- Mechanism: shared manufacturing, logistics network optimization, capacity utilization
- Sizing: (relevant cost base) × (efficiency %)
Step 4: Build the Phasing Timeline
Map every synergy line onto a Year 1 / Year 2 / Year 3 run-rate schedule:
- Cost synergies front-load — overhead in Year 1, procurement Years 1–2, footprint/systems Years 2–3 (constrained by leases and migrations)
- Revenue synergies back-load — meaningful capture starts Year 2, matures Year 3+
- Distinguish run-rate synergy (full annualized) from realized synergy (partial-year phase-in) — most models overstate Year 1 by ignoring this
- Present a cumulative run-rate build by year
Step 5: Estimate Cost-to-Achieve (CTA)
Every synergy carries a one-time cost. Size and phase it:
- Severance and retention: typically 1–2× annual overhead savings
- Systems migration and integration: often the largest CTA line
- Facility exit costs, lease breaks, decommissioning
- Advisory, rebranding, and PMI program cost
- Express total CTA as a ratio to annual run-rate synergy (healthy deals land near 0.5–1.5× Year-1 run-rate)
Step 6: Net It Out and Risk-Adjust
- Produce a base case (planned) and a risk-adjusted case (revenue haircut 30–50%, cost 10–20%, CTA +15%)
- Calculate net synergy value: sum of phased run-rate synergies less CTA, discounted to present value
- Express synergy value as a multiple of purchase price (what % of EV the synergies represent)
- State the single sentence a skeptical board member needs: does this deal work without revenue synergies?
Output Format
- Structure: Sectioned analysis with a revenue-synergy table, a cost-synergy table, a phasing table (Year 1–3 run-rate), and a CTA summary
- Length: 1,000–1,400 words plus tables
- Format: Structured document with quantified tables — every synergy line shows mechanism, gross value, haircut, and net value
- Sections: Synergy baseline → Revenue synergies → Cost synergies → Phasing timeline → Cost-to-achieve → Net & risk-adjusted summary → Board-level verdict
- Tone: Corporate development director — numerate, skeptical of revenue synergies, explicit about every assumption, unwilling to hand-wave
Quality Checklist
Before delivering output, verify:
- [ ] Every synergy line has a stated sizing formula — no unsupported dollar figures
- [ ] Revenue synergies carry an explicit realization haircut (never taken at 100%)
- [ ] Every assumption drawn from a benchmark rather than provided data is flagged as such
- [ ] The phasing table separates run-rate from realized synergy across Years 1–3
- [ ] Cost-to-achieve is quantified and expressed as a ratio to run-rate synergy
- [ ] Both a base case and a risk-adjusted case are presented
- [ ] The output states whether the deal works on cost synergies alone
Notes
- The single most common modeling error is taking revenue synergies at face value — they are real but slow, uncertain, and should never carry the deal thesis. If the deal only works with aggressive revenue synergies, say so plainly.
- Cost synergies are the bankable case; revenue synergies are the upside. Boards discount the two very differently — present them separately, never as one blended number.
- Serial acquirers realize a higher percentage of planned synergies than first-time buyers. Calibrate the achievable haircut to the acquirer's integration track record when known.
- If the strategic rationale is vague, ask one question: "What is the one synergy that, if it fails, kills the deal thesis?" — size that line first.
How to use this skill
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Installing in Claude Code:
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Using in Claude.ai, ChatGPT, Gemini, or other AI tools:
- Drag this file into a new chat, or copy and paste its contents
- Send your task or request as your next message — the AI will apply the skill where it fits
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