M&A Cases 2026: The Delivery Rate a Premium Demands
An M&A case where 85.4 percent of the cost savings have to be delivered before a $255M price is justified, and margin dilutes to 11.7 percent until then.
- An acquisition case contains three questions: what the target is worth on its own, what it is worth to this buyer, and how much of the difference is being paid away in the price.
- A buyer earning 12.5 percent pays 13.5 times for a target earning 9.0 percent, which is $255.15M and a premium of $75.6M over its own multiple.
- Capitalizing only the cost synergies at the buyer's own multiple gives $133M, less $38M to achieve, so $95M against a $75.6M premium.
- Solve it backwards and 85.4 percent of the cost savings have to land before the price is justified, without counting a dollar of cross-selling.
- Combined EBITDA margin falls from 12.5 percent to 11.7 percent before synergies and reaches 14.25 percent after them, so every point rides on delivery.
An acquisition case looks like a valuation exercise and is really a delivery question. The target has a standalone value, the buyer thinks it is worth more, and the price decides how much of that difference the buyer keeps. Everything else is detail.
Three questions inside one acquisition case prompt
Structure the prompt around what the buyer keeps, and the branches fall out.
- What is the target worth on its own? Its earnings, its growth, the multiple its peers trade at.
- What is it worth to this buyer specifically? Standalone value plus synergies, less the cost of getting them.
- How much of that is being paid away? The premium over standalone, which is the only part the seller captures.
Most candidate structures cover the first question well and the third barely at all. A deal can be strategically perfect and financially bad, and the difference is entirely in question three.
The fourth thing to name early is the bar. Public acquirers usually test earnings accretion in year one, private equity buyers test internal rate of return over a hold period, and a family owner may test whether the combined business can service debt. Those three bars accept different deals, and Bain notes it works with "about 80% of the largest private equity firms in the world", checked 29 September 2026 at bain.com, which is a reminder that the buyer type in the prompt is load-bearing information.
Reading a worked example is not producing one.
Score my answerThe two companies in an acquisition case, and the price on the table
A specialty distributor with 740 million dollars of revenue and a 12.5 percent EBITDA margin is buying a competitor with 210 million dollars of revenue and a 9.0 percent margin.
Acquirer EBITDA is 740 times 0.125, which is 92.5 million dollars. Target EBITDA is 210 times 0.09, which is 18.9 million dollars. The agreed price is 13.5 times target EBITDA, which is 13.5 times 18.9, or 255.15 million dollars.
The acquirer's own shares trade at 9.5 times EBITDA. That number is the reference point, because it is what the market will pay for a dollar of this buyer's earnings. Buying a dollar of earnings at 13.5 times and holding it in a company valued at 9.5 times destroys value unless something changes the dollar.
The premium over the buyer's own multiple is 13.5 minus 9.5, which is 4.0 times, on 18.9 million dollars of EBITDA, so 75.6 million dollars. That is the figure the synergies have to justify.
Synergies in a merger acquisition case, split by credibility
Management has presented 24 million dollars of annual synergies and 38 million dollars of one-time cost to achieve. Split them by credibility rather than by size, because a committee will.
| Source | Type | Annual value | Credibility |
|---|---|---|---|
| Overlapping distribution centers | cost | $8M | high, headcount and leases are countable |
| Procurement scale on shared suppliers | cost | $6M | high, contracts can be repriced on signature |
| Cross-selling into the target's accounts | revenue | $10M | low, depends on customers who have not agreed |
| Total | $24M |
Cost synergies total 8 plus 6, which is 14 million dollars. Revenue synergies are 10 million.
The difference between the two halves is who has to act. Closing a distribution center is a decision the buyer makes alone. Cross-selling requires the target's customers to buy something they have not bought, and none of them is in the room. So the disciplined case values the cost synergies and treats the revenue synergies as upside to be named and excluded.
Capitalize the cost synergies at the buyer's own multiple: 14 million times 9.5 is 133 million dollars. Subtract the 38 million of cost to achieve and the value created is 95 million dollars, against a premium of 75.6 million. The deal clears by 19.4 million on cost synergies alone, and the 10 million of revenue synergies at a 50 percent realization haircut would add 10 times 0.5 times 9.5, which is 47.5 million of upside on top.
The share of the savings that has to land
The useful move is to solve that backwards, because delivery is the thing that fails. Ask what annual cost saving is required for the value created to exactly equal the premium.
Set 9.5 times the annual cost saving, less 38 million of cost to achieve, equal to 75.6 million. That gives 9.5 times S equals 113.6 million, so S is 113.6 divided by 9.5, which is 11.96 million dollars. As a share of the 14 million promised, that is 11.96 divided by 14, which is 85.4 percent.
So the deal needs 85.4 percent of its cost synergies to land before the price is justified without counting a single dollar of cross-selling. That is the sentence to take to an investment committee, and it is more useful than the 19.4 million of headroom, because it converts the question from how much is there into how much has to be delivered.
It also tells you what to negotiate. Every million dollars taken off the price reduces the required delivery rate: at 250 million the premium falls to 70.5 million and the required saving falls to 11.42 million, which is 81.6 percent. And every million saved on the cost to achieve does the same thing at a rate of one to 9.5.
Can you hold the model under a clock?
What the deal does to the acquirer's margin
Before any synergies, combined revenue is 740 plus 210, which is 950 million dollars, and combined EBITDA is 92.5 plus 18.9, which is 111.4 million. The margin is 111.4 divided by 950, which is 11.73 percent, against 12.5 percent standalone.
The acquirer's margin dilutes by 0.77 points on completion, which is arithmetic rather than opinion: a lower-margin business added to a higher-margin one pulls the average down.
Add the full 24 million of synergies and combined EBITDA is 135.4 million dollars, so the margin is 135.4 divided by 950, which is 14.25 percent. The deal is dilutive to margin before synergies and clearly accretive after them.
| Stage | Revenue | EBITDA | Margin |
|---|---|---|---|
| Acquirer standalone | $740M | $92.5M | 12.50% |
| Combined, no synergies | $950M | $111.4M | 11.73% |
| Combined, full synergies | $950M | $135.4M | 14.25% |
That table is the whole argument on one slide. The chief financial officer will be asked about a margin that fell, in the quarter after close, before any of them has been realized, and the answer needs to be ready before the deal is signed.
Phasing, and the year the cash turns
Synergies arrive slowly and costs to achieve arrive fast, which is why a deal that works on paper strains the balance sheet first.
Assume synergies land at 30 percent in year one, 75 percent in year two and 100 percent from year three, and that the 38 million of cost to achieve splits 22 million in year one and 16 million in year two.
| Year | Synergies realized | Cost to achieve | Net cash |
|---|---|---|---|
| 1 | $7.2M | $22M | ($14.8M) |
| 2 | $18.0M | $16M | $2.0M |
| 3 | $24.0M | 0 | $24.0M |
Year one is 24 times 0.30, which is 7.2 million, less 22 million, so negative 14.8 million. Year two is 24 times 0.75, which is 18.0 million, less 16 million, so positive 2.0 million. Cumulative net cash turns positive during year three, at negative 14.8 plus 2.0 plus 24.0, which is positive 11.2 million.
So the deal consumes cash for roughly two years before it contributes any. A buyer with tight covenants cares about that more than about the multiple, and it is the kind of constraint that belongs in the recommendation rather than in the appendix. Decision trees covers what happens when a floor like that overrides an expected value.
One more actor can stop the deal entirely. Competition authorities assess whether a merger raises prices, and that assessment is its own profession: Compass Lexecon's competition analysts run a two-stage process in which "The second stage includes a written case study and a technical interview", checked 29 September 2026 at fticonsulting.wd108.myworkdayjobs.com. A structure that omits regulatory clearance on a deal between two competitors has missed a branch that can zero the whole calculation.
Where acquisition arithmetic is scored
The weights below are ours, read from the rubric code our own grader runs. No consulting firm publishes a marking scheme, so none of this is any firm's view of a merger case.
- Answer40
- Working25
- Interpretation20
- Units15
| Structuring | Coverage 45 · Separation 25 · Depth 20 · Concision 10 |
|---|---|
| Idea generation | Breadth 30 · Buckets 30 · Specificity 20 · Prioritisation 20 |
| Market sizing | Scope 25 · Assumption chain 30 · Arithmetic 25 · Sanity check 20 |
| Exhibits | Observation 25 · Implication 25 · So what 30 · Next test 20 |
| Synthesis | Answer first 35 · Evidence 25 · Risk 20 · Next step 20 |
Answer 40 is the largest line, and the usual failure is answering the wrong question. Reporting that synergies of 24 million exceed a premium of 75.6 million divided by nothing is not an answer. The multiple has to be applied before the two are comparable.
Working 25 rewards a premium calculation written as a subtraction of multiples. Writing 13.5 less 9.5 times 18.9 lets the interviewer change the trading multiple and get a new answer in five seconds.
Units 15 is the trap on this page. An annual saving and a one-time cost to achieve are different units, and comparing 24 million of annual benefit with 38 million of one-time cost is the error the phasing table prevents.
Interpretation 20 is the 85.4 percent. Producing 95 million of value created is arithmetic; saying that the deal needs 85 percent delivery is the finding. The reasoning behind each weight sits on how an answer is assessed.
Restructuring firms treat this arithmetic as core training: AlixPartners lists cash management, insolvency and due diligence among the first modules of its analyst program, checked 30 September 2026 at alixpartners.com. Charles River Associates asks candidates to "show your math", checked 30 September 2026 at crai.com, and a premium calculation is the one worth writing out in full.
Test a delivery threshold in the breakeven calculator and time a chain like the one above in the case math drill. Both are free and need no account. Neither knows whether your client's integration team has ever closed a distribution center, which is the judgment the 85.4 percent rests on. For the seller-side and market-side work that precedes a price, see commercial due diligence; for the incremental discipline that applies to every claimed saving, see cost benefit analysis.
See your answer scored, dimension by dimension.
Reading a worked example and producing one are different skills. Work a full case and see it scored, dimension by dimension.
Sources
Primary sources only: the firm, the test vendor, or the institution concerned. Each carries the date we last read it.
- fticonsulting.wd108.myworkdayjobs.com/CompassLexeconCareers/job/London-United-Kingdom/Analyst---Competition-Practice---London_JR261333the two-stage interview process for analysts, including a written case study at second stage, and the empirical analysis the role performs in competition workchecked 2026-09-29
- alixpartners.com/careers/students-and-recent-graduates/business-analyst-programme/the training modules that place due diligence alongside cash management and insolvency, and the three named components of the selection processchecked 2026-09-30
- bain.com/industry-expertise/private-equity/the firm's claim to work with about 80 percent of the largest private equity firms and its three named diligence service lineschecked 2026-09-29
- crai.com/cra-careers/prepare-to-apply-interview/the instruction to show your math, and the firm's description of the four interview styles it may usechecked 2026-09-30
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