In the context of M&A, which of the following statements is correct?

Question

BlackTom AI · Accepted Answer

The question asks about M&A and asks which statement is correct. The lone option provided is: 'The acquisition premium the acquirer can afford is smaller when the synergies are smaller.'

To evaluate this, consider what acquisition premium represents: the amount above the target's standalone value that the acquirer is willing to pay. A key driver of that willingness is the expected value of synergies—cost savings, revenue enhancements, or other incremental benefits arising from the combination.

If synergies are large, the combined entity is worth more than the sum of its parts, which can justify a higher premium to persuade the target to agree to the deal. Conversely, when synergies are small, the incremental value created by the merger is limited, reducing the amount of premium that would be justifiable to the target's shareholders and to the board.

Therefore, the statement aligns with the logic that smaller synergies imply a smaller premium can be justified, because there is less additional value to be captured from the integration. However, it is worth noting that in practice, acquisition premiums are influenced by multiple factors beyond synergies alone, such as strategic fit, bidding dynamics, market competition, target’s negotiation strength, and deal certainty. These nuances mean the premium is not determined solely by synergy size, though the core idea that smaller synergies support a smaller justifiable premium is sound.

Given there are no other answer options to compare, this analysis focuses on the single statement's internal consistency and its relation to the general M&A valuation logic.

COMM_V 370 101-108 2025W1 COMM 370 2025W1 - Practice Final

In the context of M&A, which of the following statements is correct?

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