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Unit-5 Merger

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20 views14 pages

Unit-5 Merger

Uploaded by

mishra.prateek2506
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Types of synergies – cost savings

Here is a list of cost-saving synergies that can be achieved when two


companies merge:

 Shared Information Technology: Each company may have


proprietary access to information technology that would allow for
operational efficiencies if applied or used in the other firm.
 Supply Chain Efficiencies: Similar to information technology, if either
company has access to better supply chain relationships, there may
be cost savings that the merged firm can take advantage of.

 Improved Sales and Marketing: Better distribution sales and


marketing channels may allow the merged firm to save on costs that
were being expensed by each individual firm when they were
separate.

 Research and Development: Either firm may have had access to


research and development efforts that, when applied to their
counterpart firm, allow for better development or room to cut costs in
production without sacrificing quality. For example, one firm may
have been developing a cheaper alloy that could be used in the
production of an automobile the other firm produces.

 Lower Salaries and Wages: The merged companies won’t need


two CEOs or two CFOs, etc., and this logic applies down the entire
organizational chart.

 Patents: If the acquirer used to pay the target firm a fee for access to
its patent, a merge may transfer the right of that patent to the
acquirer, thus eliminating that expense.

Synergies are covered in more detail in our free Corporate Finance 101
course.

Types of synergies – revenue upside

Here is a list of revenue-enhancing synergies that can be achieved when


two companies merge:

 Patents: Similar to the cost-saving effect of a patent, access to


patents or other IP may allow the merged firm to create more
competitive products that produce higher revenue.
 Complementary products: Both individual firms may have been
producing complementary products pre-merger. These products can
now be bundled in such a way to produce higher sales from their
customers.

 Complementary geographies and customers: Merging two firms


with varying geographies and customers may allow the merged firm
to take advantage of the increased demographic access, producing
higher revenue.
Types of synergies in M&A modeling

Below is a screenshot of CFI’s Mergers and Acquisitions Modeling Course.


As you can see in the lower right corner of the assumptions section, there
are various types of synergies that are incorporated into the model such as
revenue enhancements, COGS savings, marketing savings, and G&A
savings.

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