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# Quantify/Calculate Synergies - Formulae

Synergies
New answer on Apr 30, 2024
941 Views

Hi everyone.

I have seen that there are many posts where they talk about calculating/quantifying synergies (Revenue and Cost).

I could not seem to find the formulae for these 2 synergies; was wondering if there would be any example that I could refer to for the calculation steps with values?

Or are the formulae the same as the general Revenue (price x volume) and cost (fixed + variable)?

Thanks a lot!

(edited)

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It's difficult to give a complete answer to this, so let me mention a few relevant points and maybe other coaches can complete the answer:

1. At a high level you compare the Merged company profitability with the “As is” company profitability (considering each driver at a time).
2. For this you have to consider revenues and costs, and what drives them, as you hinted.
3. You also have to consider de-synergies, i.e., things that actually negatively impact value (e.g. customers that don't want to stay with the new merged company)
4. Depending on the case, you may also need to consider one off costs, i.e. integration costs (i.e., only if in scope for the case, check with the interviewer)
5. You may also need to consider capital allocation synergies (also only if in scope)
6. I don't find the 2nd layer of price x volume and fixed vs. variable costs as very useful. I'd rather breakdown revenues in terms of products, markets, channels, or client segments. Which one to use depends on the situation. Basically you want to understand when there is an overlap and where there is none. Then you need to understand whether it means market power (i.e. price, shelf space, brand power), ability to introduce existing products in new markets or channels, but also consider cannibalization (- volume).
7. On the cost side you have to think about the specific costs. I prefer to think about activities or functions (procurement, R&D, production/operations, logistics, marketing, sales, corporate overhead) → this is a bit generic, needs to be taylored to the specific industry or business. You can for example consider scale advantages, better capacity utilization, redundancies, and also internal best practice adoption as drivers of savings.

So I've structured this in a way that you start with a profitability formula. But to be honest, you could start with a qualitative approach and get into a similar end result. Maybe one of the other coaches can give some color to an alternative approach.

Hi there,

There is not a synergy “formula”. Synergies are “how can x company help y company be better than they otherwise could”.

So, anything regarding cost reductions or revenue uplift are synergies. Ultimately, most of these “formulas” are going to be caculating differences in the before and after state.

Make sense?

Hi!

There is no specific formula to compute synergies!

Hope this helps.

Best,

Anto

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