What are synergies in an acquisition?
Short Answer
Synergies are the additional value created by combining two businesses — cost synergies from removing duplication, and revenue synergies from cross-selling or reaching new markets — that neither would achieve alone.
Full Explanation
Synergies are the reason a buyer can pay more for a business than it is worth standing alone, and the reason acquisitions can create or destroy value. They come in two forms. Cost synergies remove duplication: shared overheads, combined purchasing power, consolidated systems or premises. They are usually more certain and quicker to realise. Revenue synergies grow the top line: cross-selling each business's products to the other's customers, entering new markets, or strengthening a proposition. They can be larger but are harder and slower to achieve, and buyers are right to discount them. Synergies matter to price because a trade buyer may share some of the synergy value with the seller to win the deal. They matter even more to whether the deal succeeds, because realising them depends on integration — the 100-day plan and the disciplined combining of the two organisations. Overpaying for synergies that never materialise is one of the most common ways acquisitions disappoint. See [grow by acquisition](/insights/grow-by-acquisition-strategy) and the [synergy value](/intangibles/glossary/synergy-value) definition.
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