Synergies - Synergies In this part, I will present the...

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Synergies In this part, I will present the concept, drivers and valuation of M&A Synergies, and also the actual market response to the merger announcement in this case study. Let’s me introduce the concept of synergy to you first. The word synergy derives from an ancient Greek word meaning to cooperate or to work together. Where synergy happens, the whole is greater than the sum of the parts, the so-called 2+2=5 effect, i.e. If am I willing to pay 5 for the business market-valued at 4 there has to be the Synergy justifying that. In M&A, the more technical definition is Synergy is ability of merged company to generate higher shareholders wealth than the standalone entities. The Synergy drivers can be divided into two parts: Revenue enhancement and Cost reduction. Revenue enhancement means the new firm may sell more product than the existing firms would have sold independently – perhaps because of a more efficient marketing force or because of cross-branding. It also improves the market power of the firm and increases the market share in the competitive industry. Cost reduction means economies of scale from higher capacity utilization of existing P&E; greater purchasing power vis-à-vis suppliers; elimination of intermediaries in a supply chain; improvement in logistics and distribution; closing the targets’
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This note was uploaded on 01/27/2012 for the course ACCT 1501 taught by Professor Helen during the Three '09 term at University of New South Wales.

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Synergies - Synergies In this part, I will present the...

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