What are the types of synergies in an M&A deal?

Synergies can be classified between revenue synergies and cost synergies.

Revenue synergies are benefits from the merger or acquisition that can enhance revenue. They include:

  • Cross-selling products to expanded customer base
  • Opportunity to introduce new products into new geographical market
  • Obtaining access to expertise or patents that enhance the product, which increases sales
  • Price increases driven by increased market power

Cost synergies are benefits from the merger or acquisition that can lower costs. They include:

  • Economies of scale: spreading fixed costs (ie operating expense) over a larger revenue base and reducing fixed costs as a % of revenue
  • Saving costs on finance, IT, etc. by applying best practices
  • Reducing variable costs (ie cost of goods sold or cost of sales) by Increasing bargaining power with suppliers and / or vendors
  • Reducing supplier costs, vendor costs and / or distribution markup by acquiring suppliers, vendors, and / or distributors up the value chain