Glossary
Deal economics
What is synergies?
Cost savings or extra revenue from combining two businesses.
Cost synergies are mostly in the buyer's control; revenue synergies depend on customers. Both take years to phase in and cost money to achieve.
A worked example
Two companies merge and expect to save $40m a year by closing overlapping offices. At 10x, that's $400m of value, which is why buyers are tempted to hand some of it to the seller in the premium before they've saved anything.
Where it catches you in the game
- The strategic buyer's capacity counts its cost synergies; the revenue synergies its deck claims are shown, not paid for.
It comes up most on the investment banking desk.
Related terms
Learn it by using it
Definitions stick once they've cost you money. Take a seat, make three calls a year and watch what synergies does to your returns.