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Synergies framework

M&A Synergies
New answer on Nov 13, 2023
4 Answers
4.3 k Views
Anonymous A asked on Mar 31, 2019

Hello, I woud like to get some advice on how to structure a framwork to identify Synergies (Generally occuring in M&A cases). More specifically, once you break it down in Cost synergies and Revenue synergies what are the most recurrent ones for each cathegory (e.g. distribution channels, advertisment, production, raw material etc.).

Lastly, a few times it's hard for me to categorize if something it is a cost or revenue synergy. For example, in my view a distribution channel's synergy could be either a cost synergy, because I use the same channels a for 2 or more products, but it could be also a revenue synergy, since i would increase the sales on the single channel.

Thank you!

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Clara
Expert
Content Creator
replied on Nov 13, 2023
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

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Serhat
Expert
replied on Apr 26, 2019
BCG | Kellogg MBA |82% Success rate| 450+ case interview| 5+ year consulting | 30+ projects in ~10 countries

Here is the categorization for revenue and cost synergies

Revenue Synergies

  • Patents:
  • Complementary products:
  • Complementary geographies and customers

Cost Synergies

  • Shared Information Technology:
  • Supply Chain Efficiencies:
  • Improved Sales and Marketing:
  • Research and Development: E
  • Lower Salaries and Wages:
  • Patents
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Sidi
Expert
replied on Apr 01, 2019
McKinsey Senior EM & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 350+ candidates secure MBB offers

Hi! Don't use the value chain to disaggregate synergies on the first level! First you have to disaggregate into principle value dirvers, and the value chain comes into play WITHIN the cost analysis. I.e.,

(a) revenue synergies --> price/quantity --> subdrivers of quantity, and

(b) cost synergies --> value chain

Don't forget financial synergies (e.g., the new merged organization might get a better credit rating and, hence, lower costs of capital in the future).

Cheers, Sidi

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Vlad
Expert
replied on Mar 31, 2019
McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School

Hi,

Hi,

For Synergies Calculation you can use the following structure:

  1. Revenue synergies - here you calculate the synergies in price (more monopoly power) and quantity (depending on the case it may be new geographies, new products, new distribution channels, bigger share on shelves crosselling opportunities, etc.)
  2. Cost synergies - typically you use a value chain structure tailored to the industry (e.g. supply-production-distribution-marketing-after sales support)
  3. Risks - major risks that can decrease the synergies (tip: don't underestimate the merging companies culture factor)
  4. Total synergies potential in $, adjusted by risk (probability of failure)

Distribution is a cost synergy when you get a cheaper distributor (or get discounts for volume). It's also a revenue synergy if it can increase your sales (e.g. access to new stores or geographies)

Best

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Clara gave the best answer

Clara

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