When executives and senior managers talk about mergers and acquisitions it is not unusual to hear them mentioning synergies. But what are they?
Synergies occur when there are gains or losses from the companies getting together. We can talk about:
A) Cost synergies: they are achieved by eliminating overlaps and duplications. Eg there are two CFOs after the merger and only one is needed.
B) Revenue synergies: increasing sales, for example as the result of the acquisition of new products and customers.
When embarking in M&As it is important to determine what synergies can be achieved with the deal and how to track them. Most deals deliver a mix of revenue and cost synergies and are achieved through integration.
This explains the reason why the integration stage is key for the success of a deal and why this phase should not be dismissed by the executives simply as “operational”.
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