Undoubtedly, the concept of synergy cannot only help in attaining several corporate goals, it can also enhance the workability of a company. By working on numbers effectively, a merger or an acquisition can no doubt be made a success.
Synergy encompasses the concept that combination of two companies produce better end results. Not only does the value of the combining companies increase but performance is also enhanced. For example if a company let say X excels in marketing strategies but its operations are not so strong whereas another company say Y excels in operations but the marketing strategies adopted by them do not bear fruit, by the combination of the two firms, X and Y, the resultant company will fare much better. The reason being, both the companies utilize each other’s expertise. This exemplifies the idea of synergy.
Acquiring companies pay more: Synergy usually pertains to mergers and acquisitions of major companies. But it does have one drawback and that is cost efficiencies pertaining to synergy are difficult to register. It is generally seen that the company, which is taking over or acquiring another company has a tendency to pay slightly more than what the price actually is. A merger or acquisition proves to be beneficial if the price of shares following a merger increases.
Tempting the shareholders: An individual who is owning shares will definitely not like to give away the shares if it is seen that by retaining the shares, he would be more benefited. So, to make the individual sell his shares, such a price has to be offered, which will be higher than the current price prevailing in the market. The shareholders also look forward to an increase in the price of shares after the merger.
Statistical expression: The following equation helps in determining the effectiveness of synergy pertaining to a deal. Pre merger stock price is obtained by dividing the sum of pre merger value of the merging firms and synergy divided by post merger number of shares.
What is desired: In other words, it can be said that synergy is said to be effective if there is an increase in the value of buyer by the merger. For more information on Synergy, one may visit the links given below:
Last Updated on : 29th July 2013