A strategic buyer is trying to value us purely on our historical standalone EBITDA, but we know they will immediately eliminate our back-office, rent, and redundant software costs post-close. How do we model and negotiate a synergy split to capture a portion of these cost savings in our upfront valuation multiple?

Question

Tyler Smith · Accepted Answer

Strategic buyers love to buy businesses based on historical performance while quietly planning to reap massive cost savings from day one. If you allow them to pocket one hundred percent of those synergies, you are leaving millions on the table. To capture your fair share, you must build a detailed pro forma synergy model. Identify every redundant expense the buyer will eliminate post-close. This includes overlapping administrative salaries, duplicate software licenses, consolidated office leases, and bulk purchasing discounts on raw materials. Calculate the exact dollar value of these savings. In your negotiations, do not just ask for a higher multiple. Instead, present this synergy model and propose a synergy split. A standard starting point is a fifty-fifty split of the projected first-year cost savings. Add this agreed-upon synergy value directly to your adjusted EBITDA before applying the valuation multiple. For example, if you have one million dollars in standalone EBITDA and identify four hundred thousand dollars in highly certain cost synergies, you negotiate using an adjusted EBITDA base of one million two hundred thousand dollars. This directly increases your walk-away cash at closing. If the buyer resists, offer to structure this synergy premium as a short-term earnout tied to the actual integration milestones. This proves you are willing to share the execution risk.