Are revenue synergies or cost synergies easier to predict?

You have to adjust for the following items in the pro forma income statement:

  • Incremental interest expense for any new debt the acquiror has taken on to finance the acquisition
  • Lost interest income from cash used to finance the acquisition
  • Revenue synergies
  • Cost synergies
  • Additional corporate costs such as integration costs
  • Incremental amortization of capitalized financing fees
  • Incremental depreciation from PP&E write-up
  • Incremental amortization from intangible assets write-up

Keep in mind these adjustments are made pre-tax on the income statement, and then a tax rate is applied to see the after-tax effect.