How do synergies factor into an accretion/dilution analysis?

Synergies are added to pro forma operating income and flow through to net income on an after-tax basis (synergies x (1 - tax rate)). Cost synergies (headcount, facilities, procurement) are the most credible and are usually phased in over a few years, often net of one-time integration/restructuring costs. Revenue synergies are heavily discounted by interviewers as speculative. Adding net synergies raises pro forma EPS and can flip an otherwise-dilutive deal to accretive - so banks often quote both pre- and post-synergy accretion/dilution.

⚠ Common wrong answer: "Add the announced synergy number straight to the combined net income." Why it fails: Synergies land in OPERATING income and must be tax-effected at (1 − t), are typically phased in over several years, and should be netted against one-time integration costs. The full pre-tax figure overstates accretion.