Synergy - Types

Godson zachariah

Definition of 'Synergy'

The concept that the value and performance of two companies combined will be greater than the sum of the separate individual parts. Synergy is a term that is most commonly used in the context of mergers and ac uisitions. Synergy! or the potential financial benefit achieved through the combining of companies! is often a driving force behind a merger.

 Mergers and acquisitions are made with the goal of improving the company's financial performance for the shareholders. Two businesses can merge to form one company that is capable of producing more revenue than either could have been able to independently! or to create one company that is able to eliminate or streamline redundant processes! resulting in significant cost reduction. "ecause of this principle! the potential synergy is examined during the merger and ac uisition process. #f two companies can merge to create greater efficiency or scale! the result is what is sometimes referred to as a synergy merge.

The $roctor % Gamble &ompany ac uiring Gillette

Types of Synergies

'perating("usiness Synergies
"usiness synergies can be potentially be realized in all direct functions )e.g.* Sourcing !production sales+ and indirect functions )e.g.* ,%D ! mar-eting! .,+ along the company/s value chain. .owever the achievement of business synergy depends on existence of relatedness between combined companies concerning activities! products and mar-ets

"usiness synergies result from -ey sources such as*

a. 0conomics of Scale b. 0conomies of Scope

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Financial synergy
Financial synergy gained by the combined firm is a result of number of
benefits which flow to the entity as a consequence of acquisition and merger.

 Cash slack Debt capacity Tax benefits Management Cost

Managerial synergy

Managerial synergies occur when the management of one of the

companies merging has superior abilities from which the other firm can profit

Market synergy
Market synergy can best be described as a detailed plan for marketing ones business or product. That plan will allow two or more smaller marketing initiati es to achie e a result higher than the sum of the effort.

Market power synergy Market expansion synergy