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Medium Merger & Acquisition Synergies Attrition

Telco Talks

#Telecommunications
ProHub Comment

This case tests a candidate's ability to build a financial model for M&A valuation using perpetuity calculations and synergy analysis. The key challenge is recognizing that the per-customer profitability initially declines with acquisition, but becomes accretive only with realistic cost synergies. Strong candidates must also identify critical risks around customer attrition and assumption sensitivity.

Estimated Time 15 minutes
Difficulty Medium
Source Chicago Booth
50 / 100
Our client is a large telecom company that operates in the Midwestern region. They focus on providing 3 primary services: phone, TV, and internet. They have already taken several cost cutting initiatives, and now are currently exploring new growth opportunities. They’ve been approached by another telecom company (WIT Co) to purchase WIT Co’s assets and customer base, which would transform our client from a regional player to a national player. Our client therefore has asked us whether or not they should proceed with purchasing WIT Co’s assets.

Clarifying Information

  1. Company Goal is to grow while maintaining margins on customer basis.
  2. Background: assets are concentrated in 3 states – CA, NY, FL.
  3. Customers – Are both residential and business.
  4. Current Client – Revenue of $8.5B
  5. Current Client – Costs of $7.5B
  6. Current Client – 5M customers
  7. WIT Co (acquisition target) – Revenue of $5B
  8. WIT Co (acquisition target) – Costs of $4.55B
  9. WIT Co (acquisition target) – 3.6M customers