In cfa text pg 465 question #1- they ask us to calculate the pro forma ebitda for strategic and financial buyers. I don’t get how you know the difference and why you normalize the compensation for the financial buyer. Also, why can’t the financial buyer get rid of inefficiencies in SGA?
The assumption is that as a financial buyer, you’re a passive investor. If you’re going to be actively pursuing “synergies,” then you’d be a strategic buyer. As a strategic buyer, you will influence management’s activities because things like controlling SG&A, reducing costs, etc. would categorize you as a strategic buyer.
So would it be safe to assume that you always normalize management compensation, no matter if you’re a strategic or financial buyer?
Yup. However, other areas could be hazy… the example talks about “eliminating duplicate operations” which is something most people recognize as synergistic. However, there could be other costs that may go either way. I hope they keep it straighforward on the exam!