Thoughts on merger synergies
A (positive) synergy is the increase in shareholder value coming from mergers and acquisitions activity. Below is a list of potential synergies that are usually considered for mergers and acquisitions. If a synergy applies for a deal and how big the synergy is has to be analysed and planned for each deal.
Keep in mind that synergies are not self-fulfilling prophecies. You need careful planning, execution and tracking of synergy related work to realize synergies.
Synergies seen from outside of the companies
Looking at a company from the outside, the synergies of a merger can come from the following sources:
Relationship to Suppliers
increased negotiation and purchasing power
consolidation of existing suppliers and contracts
leveraging better existing conditions for a supplier contract from target or acquirer
Supplied goods and services
increase in purchasing volume and potentially a decrease in price
Relationship to financial institutions
increased negotiation and purchasing power
Relationship to customers
increased negotiation and purchasing power
increased revenue from upselling and cross-selling opportunities
increase in portfolio assets to be sold to customers
increase in the number of customers and/or markets covered
Sold goods and services
revenue effects from broadened portfolio
faster time to market since acquired goods and services are available immediately for selling by the acquirer
Relationship to partners
increased number of partners
Relationship to government and states
potential synergies for corporate tax
Synergies seen from the inside of companies
Synergies for all corporate functions
Centralization of tasks and elimination of organizational and functional redundancies is often cited as a main source of synergies
Synergies for the business models
The target introduces a new business model for the acquirer
Cost synergies
Looking at cost synergies, two main sources of cost synergies are often cited: elimination of redundancies and reduction of inefficiencies.
Learn more from my upcoming book on merger integration.....
(C) Dr. Karl Popp 2019
