A strategic competitor is valuing our business strictly on our standalone trailing twelve-month EBITDA, even though they will eliminate significant overhead and duplicate software costs on day one. How do we negotiate for a share of post-acquisition synergies?

Question

Tyler Smith · Accepted Answer

Strategic acquirers make acquisitions because one plus one equals three. By acquiring your operations, they eliminate redundant executive salaries, consolidate administrative software licenses, merge warehouse footprints, and cross-sell products to their existing customer base. If they value your business strictly on your historical standalone EBITDA, they are pocketing one hundred percent of the value created by your operational infrastructure.

To capture a share of these post-closing synergies, you must build an objective, data-backed case before negotiating purchase price multiples. During preliminary diligence, prepare a pro-forma Adjusted EBITDA schedule that clearly distinguishes your internal operational add-backs from strategic synergy add-backs. Detail the exact line items the buyer will eliminate: duplicate enterprise resource planning systems, executive compensation, outsourced legal retainers, and overlapping vendor contracts.

When presenting the valuation, use this pro-forma schedule to establish your floor. If your trailing standalone EBITDA is three million dollars, but identifiable corporate synergies generate an additional one and a half million dollars of immediate margin, an offer of six times standalone EBITDA gives the buyer a massive windfall. Instead, argue for a multiple calculated on the blended pro-forma number, or insist on an expanded multiple on your standalone earnings that reflects the asset's strategic utility.

Your strongest leverage, however, is a competitive process. A single strategic buyer will never share synergies voluntarily. Introducing a second strategic buyer or a well-capitalized private equity platform forces the acquirer to pay for those synergies upfront to prevent your platform from falling into a rival's hands.