What is Synergy?
Frequently referenced through mergers and acquisitions (M&A), synergy is the concept of combining two entities that will provide greater value combined rather than two individual entities. In the finance world, synergy refers to the greater financial value when two companies merge. Corporate executives use synergy as one of the main factors when considering a merger or acquisition.
Synergies in Business
Synergy can be both positive and negative. Positive synergy results in the company merger being profitable for shareholders through a myriad of aspects such as:
- Reducing redundant processes
- Increasing efficiency
- Increasing sales
Essentially, positive synergy results in more revenue generated through the merger or acquisition.
Conversely, negative synergy results in the company merger being unprofitable for shareholders due to poor management, conflicts in company culture, or both entities not having a compatible product or service.