What is the primary reason to evaluate synergies during an accretion/dilution analysis?

The primary reason to evaluate synergies during an accretion/dilution analysis is that they enhance the projected net income and cash flow of the combined entity. In any merger or acquisition, identifying and quantifying synergies helps to determine how the combined company's financial performance could improve over time when compared to the two companies operating independently. Synergies can arise from various sources such as cost reductions, revenue enhancements, improved efficiencies, and better utilization of resources.

These enhancements in financial metrics are crucial to assessing whether the transaction will result in a net benefit to shareholders. This also informs the strategic rationale behind the merger or acquisition and the potential for long-term value creation, as higher net income and cash flows can lead to increased shareholder returns and improved market perceptions of the combined company.

While aspects like tax obligations and overall valuation matter, the direct improvement in net income and cash flow through synergies is the most immediate and impactful reason to include them in the analysis. Additionally, the relevance of synergies is critical for both stockholder sentiment and market performance, making this evaluation an essential component of M&A financial modeling.