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Chapter 11
3.2 Bootstrapping
Bootstrapping is the valuation of a company post-acquisition by
applying the larger company’s higher P/E ratio to the earnings of the
combined company.
It is based on the assumption that the market will assume that the
management of the larger company will be able to apply common
approach to both companies after the takeover, thus improving the
performance of the acquired company by using the methods that they
have been using on their own company before the takeover.
Understanding the concept of bootstrapping can enable us to
calculate the value of synergies created by a takeover.
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