Creating value through synergy in mergers and acquisitions

Abstract

Mergers and acquisitions are one of the most relevant external ways to increase capital and operational potential of a company. They allow for the development of both individual entities and entire sectors and are made with the goal of improving the company's financial performance. There are many different drivers for potential investors to undertake mergers and acquisitions. One of them is synergy. Synergy is understood as a result of two or more processes interacting together to have an effect that is greater than the effect that those processes make individually. Two or more businesses can merge to form one company that is capable of improving revenue or reducing expenses than either could have been able achieve independently. It refers to the additional value created by a transaction. More and more companies decide to evaluate synergies in their M&A financial forecasts, because they can allocate the available resources, increase revenues and reduce costs, or diversify their activities in more effective way. It is a specific factor that motivates businesses. However, it is important to make calculation to examine its economic sense and reduce potential risk of failure in business. This article focuses on the assessment of synergy and its implications in mergers and acquisitions.

Keywords

• mergers and acquisitions
• synergy
• valuation
• revenue
• acquisition premium