Private Equity house, owner of service business

Advice and challenge on management’s overly cautious synergy projections

Hotel Pay TV and, more recently, internet access services has traditionally been provided by relatively small specialist service providers that effectively operate European-wide service delivery platforms. The market is specialised, and a PE House that owned the largest operator in Europe was presented with an opportunity to buy the second largest. Management of the Number One player prepared an acquisition business plan, including synergies, however the PE house felt these did not reflect neither a fair equity or banking case.

A team was needed to challenge and stretch management’s work on a combined group model. Using benchmarks for the synergies available from the combination of overlapping businesses, we were able to provide a top down challenge to management’s project quantum. We analysed the business value chain, from sales through to billing and content distribution, leveraging our experience of analogous business, and provided a set of rationales for wider and deeper synergies. We held challenge meetings with management using these rationales to challenge areas where no or little synergy was projected and used alternative assumption as part of the challenge process.

At the end of the process, management was able to make reasonable and lower to medium risk synergy benefit projections for quantum around three times higher than the original levels. These were fed into the acquisition plan, and ‘banked’ for the purposes of funding.