When modeling the add-on, the big thing to watch out for is the timing. The private equity buyer may be doing an LBO on a large base case company, and this acquisition might be happening at the end of year zero with its sales being added to the acquirer from year one onwards.

But the add-on is being acquired at the end of year two. And this creates complexity. It means the acquisition happens in year two, but the cash flows from the add-on, such as its sales won't arrive until year three. So getting the timing of these correct can be a challenge. The timing of any synergies or cost savings can also be tricky. Our synergies don't usually all occur in the first year after acquisition. The actual synergy realization may only be 20% in the first year after acquisition, 50% in the second year after acquisition. And finally, 100% of your synergies start to happen from the third year after acquisition. But if we acquire the add-on at the end of year two, we need to apply those percent, 50%, 100%. We need to apply them to years three, four, and five.

And what if the purchase is delayed? We then need to move thosey figures to year four, five, and six. The answer to these timing issues is to use switches. We'll use those switches to help us with the timing.