Anonymised, illustrative composite. A regional distributor's information memorandum credited its adjusted EBITDA with a freight saving the business had never once achieved — a saving that existed only inside the strategic buyer's own distribution network.
At a glance
The target was a regional distributor being sold to a strategic buyer that already operated a national distribution network. The seller's advisors, aware the buyer's scale created an obvious opportunity, built a pro forma adjustment into the confidential information memorandum: a $480,000 annual freight saving from routing the target's shipments through the buyer's existing network once the deal closed, added directly to adjusted EBITDA and priced at the same multiple as every other line in the earnings build.
The buyer's own internal model had, independently, identified a similar saving as part of the strategic rationale for the acquisition — which is precisely what let the seller's advisors reverse-engineer a number for it and put it in the deck first.
An ordinary seller add-back removes a cost the target actually incurred and would not incur going forward — a real, historical number, corrected for something that has already happened. This was the opposite: a saving the target had never achieved, could not achieve on its own, and would only exist if the specific buyer at the table integrated the target's shipments into a network the target does not own and never will, sale or no sale.
A different acquirer — a financial sponsor with no existing distribution footprint, or a strategic buyer with a different network geometry — would realise none of this saving, or a materially different amount. The number was not a property of the business being sold. It was a property of this one buyer's own assets and plans, priced as if the target had already delivered it.
The pro forma credit was $480,000 a year, layered on top of the target's actual historical EBITDA. At the transaction's negotiated 6.0x multiple, that single line item was worth $2,880,000 of the asking price — for a saving with zero historical realisation and a delivery mechanism entirely outside the target's own operations.
The buyer's own model estimated the same integration saving at $410,000 in year one, ramping to the full $480,000 only in year two, contingent on completing a warehouse consolidation the buyer had not yet started and could not commit to a timeline for until after closing.
No statute or accounting rule governs a pro forma synergy credit; it is a negotiating and valuation principle, not a legal one. The question is ownership: value that is created only by the buyer's own post-closing conduct, using the buyer's own assets, belongs to the buyer's investment thesis, not to the target's stand-alone earnings base. A seller can price what the business has produced and what a reasonably capable owner could produce running it alone. A seller cannot price what a specific acquirer's own network makes possible, because that value did not come from the business being sold.
The distinguishing test from an ordinary add-back dispute is evidentiary versus predictive. A one-time-cost add-back is proven or disproven by looking at what already happened. A buyer-specific synergy cannot be proven by evidence at all, because by definition nothing has happened yet — it can only be tested by making its payment conditional on actually happening, which is why this class of dispute is resolved with an earn-out or a rollover rather than with a document review.
The parties removed the $480,000 pro forma credit from the purchase price entirely and replaced it with a two-year earn-out: an additional payment equal to 50% of the freight saving actually realised in each of the two years following closing, measured against the buyer's own freight ledger for the routes in question, capped at the original $480,000 figure.
This aligned payment with realisation. If the buyer never completed the warehouse consolidation the saving depended on, the seller was paid nothing for it — consistent with the fact that the seller had contributed nothing to creating it. If the saving materialised as projected, the seller shared in value it had, at minimum, correctly identified as available.
Paying $2,880,000 up front for a projection with no historical support and no delivery mechanism inside the target would have transferred the entire execution risk of the buyer's own integration plan onto the buyer's own purchase price, while paying the seller in full regardless of whether the saving ever appeared. If the warehouse consolidation the saving depended on slipped, stalled, or was abandoned — not an unusual outcome for a post-closing integration project — the buyer would have permanently overpaid for value that never existed, with no mechanism to recover any of it.
The tell was that the saving's size tracked the buyer's own network, not the target's own history. Ask where a pro forma number comes from: if the answer requires describing the acquirer's assets rather than the target's own operations or market, the number belongs in an earn-out, not in the price. A synergy that a different buyer would price differently is not a fact about the business for sale.
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