When paying a premium for a company, we want to compare that with the synergies So we start with the share price pre-deal and that assumes no synergies are priced in Because there's no deal happening, there's no synergies being earned If a premium is paid, it is often for the synergies earned So we then want to take the value of those synergies earned compare them to the premium paid Now the ideal for the acquirer is that the present value of your synergies is greater than the premium paid So let's say the premium paid is 100, we therefore want the present value of your synergies to be at least 101 or more If it's the other way round, if the present value of synergies is less than the premium paid, you may have overpaid So how do we calculate the present value of synergies? Firstly, you need to use a discount rate higher than the WACC, to account for riskier synergies If you think what is the WACC? Well the WACC is your cost of capital for company that already exists That already has sales, already has costs Whereas the discount rate for our synergies. Those synergies don't exist yet, there is thus risk that they might not occur Or if they do occur, they will be lower than expected. We need to account for that quite high risk We then assume that the synergy cash flow occurs at the mid year point If we assume that those synergies were evenly spread out over the year Some occurred at the start of the year, some at the end of the year. The average is the mid year point And lastly, we assume that the perpetual growth of synergies is assumed to be 0% It might take 1, 2 or 3 years to get to your full synergies, but once you get them we assume they are flat