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Unlocking value through synergies in mergers & acquisitions

On Behalf of | Jan 16, 2023 | Corporate Litigation

In the New York financial arena, synergies from mergers and acquisitions generally refer to the potential additional revenue and reduced costs that result from combining two companies. This type of transaction usually happens because the value and performance of the combined company exceed that of its two separate parts.

The sum of the blended operations can bring about several improvements or synergies, often forming the basis of support for the deal. Key synergies, such as the following examples, drive the overall deal value.

Economies of scale

Merged companies can enjoy savings from economies of scale by combining duplicative functions such as IT, accounting and HR. The combined entity can also reduce costs by consolidating buildings, reducing overall headcount and using the company’s new, larger size to negotiate more favorable deals with suppliers.

Operational improvements

Combining duplicative functions can enhance the efficiency of operations, such as manufacturing and distribution business synergies that boost productivity. Acquiring new technologies and skill sets can aid the company’s growth.

Improvements such as increased staff and larger budgets, cross-fertilization of ideas, shared expertise and new infrastructure can aid the new company in cutting time-to-market.

Increased revenue

Combining the revenue streams of two companies can result in revenue enhancements through expanded product lines and increased market share. Mergers & acquisitions are a popular growth strategy to help companies quickly gain a competitive edge, increase product and service offerings and diversify portfolio risk by expanding into new markets.

Improved capital access

A merger or acquisition can strengthen the newly formed company’s current financial position and prospects. This opens up opportunities for new capital and reduced financing costs, which will help the company fund more growth and expansion.

Tax benefits

Tax benefits may not be a primary driver for mergers and acquisitions; however, a target company may be in a tax loss position. In this case, the newly combined company can receive tax benefits such as carrying forward tax losses to offset its future profits.

Understanding and capitalizing on the synergies available through mergers and acquisitions can provide valuable growth opportunities for many companies.