What Does Synergies In M&A Stand For?

Synergy is the desired outcome and one of the ultimate goals after an M&A transaction. As a concept, synergy refers to the increased value of companies once they are combined. Potential synergy is one of the major highlights partners pay attention to.Insight into all kinds of synergies, how they work, and analyzing them will help you get the most out of the deal, and in this article, we will look at this phenomenon in more detail. 

What are synergies in mergers and acquisitions?

If we talk about the general understanding of synergy, it means beneficial interaction and successful compatibility of both businesses with each other and any resources or services. In the context of mergers and acquisitions, this term takes on a slightly different meaning, it refers to an increase in the approximate potential value and productivity of the two combined companies. In successful synergy,the cost of the amalgamated entities must be greater than the cost of each of the separate ones. 

The main goal of the M&A transaction is to conclude a contract in which the synergy of the two companies can remain highly effective in the long term. This should be facilitated by other effects of the merger of companies, namely the expansion of market share and customer base, as well as increased competitiveness. 

Synergies are divided into several types, knowing what they are will help your business find a more winning strategy for you. We’ll go into more detail about the types of synergies below.

Revenue Synergy

The basic concept of revenue synergy is that, in theory, two combined organizations will be able to significantly exceed the level of their sales compared to the revenue that each business generated individually. 

But based on research and statistics, it should be noted that this type of synergy, on average, takes much longer to accomplish than any other type of synergy. The main difficulty that inhibits the synergy process in such a case is the development of common goals and the implementation of completely new work operations and sales strategies.

Cost synergies

Cost synergy provides a union of two firms with savings through:

  • Marketing strategies and channels-their expansion, as well as the expansion of resources, significantly reduces costs
  • Common information and resources -when the customer receives new sources of research in the form of a new company, they can significantly accelerate and improve progress and overall productivity
  • Low wages – During mergers and acquisitions, downsizing is not uncommon. When a company decides whose services it no longer needs, in this way it reduces the amount of salary it must pay and saves accordingly
  • Optimized processes -Optimization is very important for a newly founded company. It saves time and money and will make your work more efficient. Also, merged companies often negotiate better prices on supplies. Virtual data rooms can also help you in optimization; they provide companies with security. And useful data management tools. To choose the right VDR you can visit datarooms-review.com

Cost synergies are easy enough to calculate. The main thing is your diligence and accurate estimation. To do this, you need to find and identify duplicate staff that you no longer need, as well as assess how your company is affected by the sharing of consumables. 

Financial Synergy

Financial synergy implies tax benefits, or credit benefits, which can often be a bit misleading. And yet it is exactly that type of synergy that is valued the most during the M&A process. 

Because of this type, the company’s financial performance improves in many ways. To determine potential financial synergies, financial and valuation analysts are usually involved.