What are synergies in M&A?

Edited by Admin
When looking for companies to acquire, buyers and advisers often use the word 'synergies', but what does that mean? In M&A, synergy refers to the accretive value generated by combining operations of the two merging business operations. Theoretically, if company A acquires company B to form a new company C, the synergy generated from the acquisition will be equal to the excess value of company C over the sum of individual values of company A and Company B. There are two types of synergies: cost synergies and revenue synergies. Generally, cost-synergies are realized sooner while revenue synergies may take some time before trickling into the company's income statement. Strategic buyers will assess potential for synergies and formulate a plan of action to successfully integrate operations before making an acquisition. This process may involve cost cutting measures and expansionary strategies designed to maximize value. For more information on how companies can take advantage of M&A synergies, contact our advisory team here.