Investing for Beginners , investing

Synergy is a popular term among management of the companies as well as among M&A participants. In finance synergy means a savings in some costs when several units are merged. The theory says it should be like “2+2=3”. Synergy may be achieved when costs of several entities are duplicated and it can be avoided by merging those units. Simple example would that small company has two units, each of them has only several employees, and each unit has some extremely expensive computer program which isn’t used a lot but is necessary to have. By merging those units company would save costs of one such program. 

Synergy may be found in many fields of the company: in main activity, in capital funding, in management costs, in marketing costs, in research, in taxation, new markets entering costs, transportation costs and other.

Synergy if often represented for the investors as the main reason for mergers and acquisitions, but not every investment in reality brings the estimated synergy as fast as expected.