Synergy is the most used word in corporate strategy and one of the least precise. It appears in acquisitions, mergers, alliances and reorganisations, usually as a single large number. Behind that number there are very different kinds of value, with very different chances of becoming cash.
Four families of synergy
- Cost synergies: procurement, overlapping overheads and footprint. Largely in management's control and the most reliable.
- Revenue synergies: cross-selling and pricing. They depend on customers' decisions and competitors' reactions.
- Capability synergies: new products or markets that neither company could reach alone. Potentially the largest, and the least certain.
- Financial synergies: lower funding costs and tax efficiencies. Real, but they rarely justify a deal on their own.
From headline to risk-weighted
Procurement and overheads keep most of their value: the buyer controls them and has done them before. Cross-selling, which looked like the second largest opportunity, keeps only 40%. New products built on combined capabilities keep a quarter. The board that approves a price based on 280 million is betting on synergies the company may never control.
Beyond M&A
The same matrix applies to any combination of businesses: a shared services centre, the merger of two divisions, a joint venture or a commercial alliance. In each case, separating what management controls from what customers and markets decide is the first step to a plan that delivers.
Bartor S.
Founder
