Let's now have a look at how things actually turned out for analog following this acquisition.

Given that the acquisition closed in August of 2021, the full year results for 2023 for financial year 2023 would give us a full year's worth of the business being in combination.

Given that the year end is the end of October of 2023, if you click on the link that we've provided back into Felix, you'll be able to find the financial statement data in relation to this coming from analog's press release.

So if we jump into that, we'll need to scroll down a couple of pages until we get through to the consolidated income statement.

And you can see here that we've got highlighted for us a number of the expenses highlighted for us.

But we've also got the revenue for the 12 month ended, 28th of October, 2023.

So let's get those numbers there into our Excel file.

And given that there is no other income or expenses identified, let's just put that in as zero to then calculate our operating profit.

We want to get down to ebitda, but first we need to get to EBIT.

So removing any non-recurring items, we're told that there is a note that references acquisition related expenses, which relates to amortization on acquisition intangibles.

So we're assuming that these are recurring operating expenses.

Well, let's go and find those within the press release.

We need to go a couple pages down from where we were to begin with through to our reconciliation of our gap, two non-gap results.

And we can see within this we have acquisition related expenses, but analog adjusts for of this 976,000.

But our note is telling us not to adjust for that.

We do still want to adjust for though the acquisition related transaction costs of the 7 0 6 9.

So let's get that into our Excel spreadsheet.

And then we also have the non-recurring expenses, the special charges that are separately identified on the face of the income statement.

So we don't wanna type those in. Again, we just want to reference those within our calculations.

Both of these want to be added back to calculate our cleaned EBIT number.

Next, we want to move on to calculating our ebitda.

So we need to add back our depreciation and all of our amortization so we can find depreciation and amortization in total on the cashflow statement.

So we need to scroll back up to get to the reported cash flow statement where we can see the depreciation and amortization numbers shown for us within the cash flow statement.

So let's get those across into the EBITDA calculation as well.

So for the amortization of the cost of goods sold, what we're gonna need to put in is all of the amortization, the 1.9 billion, given that all of these numbers are in thousands, and then subtract from this, the amortization contained within the operating expenses.

If we then separately identify the amortization within those operating expenses, both of those two together will give us the 1 9 5 8 that is reported within the cash flow statement.

If we then add those back depreciation and both amortization numbers, that will give us the EBITDA number that analog achieved in their October 20, 23 year end results, we can then move on to analyze this, which will show us the EBITDA margin they achieved at this point in time by taking the EBITDA and dividing it by the revenue value, which gives us an EBITDA margin of 51.1%.

Now, what can we say about that? Well, that looks like a pretty good number to begin with because what we had already was an EBITDA margin for analog in the previous section of only 45.3%.

So they've improved their EBITDA margin from analog on a standalone basis, ignoring entirely what Maxim looks like.

Next, we're asked to use this information to estimate the operating expenses that would've been expected based on pro forma EBITDA margins, and compare it to what's actually been achieved.

So let's first of all see what the operating expenses would've been based on the actual revenue achieved in the 2023 year based on the pro forma EBITDA margins.

And to do that, we've gotta take the 2023 revenue, the 12,305, and calculate the operating expenses by taking one minus the EBITDA margin and our pro forma EBITDA margin.

What we expected to see was the 44.0, meaning that out of all of our revenue, 56% of that would've been costs.

So had the margins for the 2023 year been the same as the pro forma calculations for 2021, we'd have expected to see operating expenses of 6,886.

But what we've actually got as our operating expenses for the 2023 year is our actual revenue minus the profit that we're left over with afterwards, our ebitda, everything else is therefore our operating expenses.

This allows us to calculate our estimated synergies, the difference between what we would have incurred as operating expenses given this year's revenue and the margin that you'd expect to see on an EBITDA basis for the group as a whole, minus the operating expenses that we did actually have in the 2023 year makes it look like we've achieved synergies of 864.5, much in excess of the 275 that was indicated within the initial press release.

So the cost synergies achieved seem to exceed management's initial estimates quite significantly, which looks like it's a really positive outcome.

However, before drawing those firm conclusions, let's dig a little bit deeper to see if we can see any of the sources of those costs savings.

And what we're gonna do to achieve that is we're gonna have a look at some of our line items of expenses in relation to our revenue, both on a proforma basis and on what was actually achieved within 2023.

So to do that, we need to take the proforma cost of goods sold, add back to that, the proforma amortization shown within cost of goods sold, and divide that by the proforma revenue, but r and d research and development as a percentage of revenue.

That is a single line, but we need to then divide that by our proforma revenue again and equally for our selling general and admin expense as a percentage of revenue.

Again, we've got a single line for that as well.

So we can see where the numbers come from on a proforma basis where we thought the breakdown of these three different types of expense lines would show in relation to revenue.

And what we're now gonna do is have a look at what that looks like on a reported basis.

So we need to take our reported cost of goods sold, deduct from that, the reported amortization within cost of goods sold, and divide that all by our reported revenue For r and d as a percentage of revenue.

It's just a matter of getting the r and d line from the reported numbers and dividing that by our revenue.

And the same again for the selling general and admin.

Now that we've grabbed all the numbers in relation to this, we can comment on our findings.

And the first thing that we can see is that we have had a reduction in terms of our cost of goods sold.

We have also had a reduction in terms of our r and d as a percentage of revenue, and only a very small change in relation to our selling general and admin.

So that's great. We've seen the reduction in terms of these profit margins.

Other things we could potentially note is that we were forecasting the pro forma earnings for the 2021 year to be just over 9 billion.

But when we get to the 2023 year end, we've got revenues of over 12 billion.

So there's been very significant organic revenue growth following the acquisition as well.

So taking these two factors together, we've seen significant revenue growth as well as apparent significant synergy delivery over and above the forecast numbers.

But to some degree, this is a very high fixed cost base industry.

And as we get high revenue, so long as our fixed costs are operating expenses don't grow in line with revenue, then you're gonna get an improvement in your EBITDA margins.

So part of the reason for the EBITDA expansion is because of the growth in our revenues.

If we're looking just at a synergy perspective, then we might have some concerns that we've been able to deliver those synergies.

In addition to the revenue growth through this reduction of r and d spending, which whilst it boosts EBITDA right now, it might lead to some concerns about future product development, which might lead to reductions in future revenue growth rate if we aren't developing the new products as expected.

So in total, we can say that the actual synergies delivered looks really impressive, but there might be some nuanced reasons why this is the case, potentially including within that reduction in r and d spending as a percentage of revenue, which might cause us some concerns about future revenue growth.

So even when the headline looks great, it's worth digging below the surface a little bit to see if we can understand some of the drivers of those synergies in excess of what was expected.