Practicing Success
Practicing Success
CUET Preparation Today
| What is the meaning of synergy in the context of mergers and acquisitions? |
the increase in value of the combined entity difference between the value of the combined firm and the value of the sum of the participants Both 1 and 2 % increase in the profitability of the new entity. |
| Both 1 and 2 |
| Synergy is the most essential component of mergers. In mergers, synergy between the participating firms determines the increase in value of the combined entity. In other words, it refers to the difference between the value of the combined firm and the value of the sum of the participants. Synergy accrues in the form of revenue enhancement and cost savings. For example, if firms A and B merge and the value of the combined entity—V(AB)—is expected to be greater than (VA+VB), the sum of the independent values of A and B, the combined entity is said to be benefitting through synergy. |
