Synergy is the concept that the combined value and performance of two companies will be greater than the sum of the separate individual parts. This often to applies to both the revenue and expense side of the profit and loss statement of the new combined business.
Synergy is the concept that the combined value and performance of two companies will be greater than the sum of the separate individual parts.
Common revenue synergies include:
(1) Cross-selling products and services to each company's existing customer base, allowing the combined entity to generate more revenue from the same number of customers
(2) Expanding into new geographic markets or customer segments by leveraging the target company's brand, distribution channels, or customer relationships
(3) Increasing pricing power with customers due to the combined company's larger scale and market share
(4) Accelerating growth by combining the companies' sales forces, marketing capabilities, and product roadmaps
Some common expense synergies include:
(1) Eliminating redundant overhead costs like finance, HR, IT, and executive management
(2) Consolidating facilities/locations to reduce fixed costs and improve efficiency
(3) Leveraging combined purchasing power to negotiate better deals with suppliers and vendors
(4) Reducing R&D costs by sharing technology, intellectual property, and best practices between the two companies
(5) Cutting sales and marketing expenses by eliminating overlapping advertising campaigns, trade shows, and promotional activities