Synergies could be overestimated or underestimated in most of M&A deals. The accurate quantification could be properly projected if it directly linked to existing operation that are run below market prices such as feedstock ad a discount or import substitute and others. however, long-term synergies from economy of scale and other integrations aspects are quite difficult to quantify and it is judgmental and depends on the depth analysis of the DD.
More often than not, corporate M&A team overestimates that value of synergies. Primarily in the valuation model this gets overinflated because of the terminal value calculation (as the team usually does DCF). Therefore it is important to discount synergies cash flow differently than the actual business operations cash flow. I don’t see that happening today in practice. The near term synergies (next three years) both on cost and revenue side is where the most value lies.
Fully agree with the previous comments. The quantification of synergies is typically most accurate when it relates to cutting cost (e.g. reducing headcount / overheads for overlapping roles, streamlining business units, disposal or shutting down of underperforming operations) shortly post transaction. These cost cutting measures are highly achievable and within the means of the management to implement, hence it would be possible to model the outcomes more definitively in the business plan / DCF model. Conversely, for more long-term synergies, particularly in relation to generating additional revenues (e.g. cross-selling of products, leveraging distribution network, ramping up through-put on under-utilized assets / capacity, etc.) would typically take more time and hence would be more subjective in nature.