Here we'll do a classic DCF calculation, but you might notice if we've already calculated our annual synergies cash flow. Then why in our second row here do we have a pre-tax synergies figure that keeps changing goes from 100 to 200 to 300.

Well, this is because in the first couple of years after a transaction, we find that our synergies take a little while to fully come through. But by year three, they might get up to their full value which is called their run rate and then they might continue at that run rate forever.

So how does the rest of the DCF work what you have to tax them and what's tax rate should we use? Well, if we assume here that our cost savings will be happening in the target. Then you would use the target MTR or marginal tax rate. However, if you assume the savings will be happening in the acquirers operations, then you use the acquire as MCR.

You then use a discount rate and here we've taken the targets WACC plus some kind of risk premium. Now estimating that risk premium is quite tricky if you can look to any past transactions then do.

You then calculate your TV your terminal value. Here have assumed no growth in the terminal value, but you could assume perpetuity growth here. You then calculate your discount factors the present value synergies some of the present value synergies and then find the present value of your terminal value, add it all up and what we get to is the value of synergies of 1,914.9.

Now the last thing you need to do then is compare that to the total premium paid because the value of your synergies is a really good indicator of how much of a premium you should be paying. If you ask yourself why we would pay a premium, it's because we get control and with that control we can do whatever we want with the company including cutting its costs to release synergy savings.

So if all of those savings to me is going to be worth 1,914.9. I should pay a premium up to that value but no more and in this case, the total premium paid is 2,300. So we have overpaid.

So just on this metric alone our value created is unfortunately value destroyed and it shows that we have overpaid by 385.1.

However, of course, there are other reasons why you may want to overpay for a company. You may just want it your strategy says we need this target. We just want to even if the synergies aren't enough. It's okay.