Synergy appears when
Value of cy AB combined > ("is greater than") Value of cy A operating independently + Value of cy B operating independently
AFM syllabus
Synergy 6 / 14
Synergy appears when
Value of cy AB combined > ("is greater than") Value of cy A operating independently + Value of cy B operating independently
Types of synergy
1) Revenue
2) Cost
3) Financial
Types of synergy
1) Revenue
2) Cost
3) Financial
Revenue synergy result in
- higher revenues for the combined entity,
- higher return on equity and
- a longer period when the company is able to maintain competitive advantage
Revenue synergy result in
- higher revenues for the combined entity,
- higher return on equity and
- a longer period when the company is able to maintain competitive advantage
Cost synergy result from
- reducing duplication of functions and related costs,
- taking advantage of Economies of scale (arising from eg larger production volumes and bulk buying);
- taking advantage of Economies of scope (which may arise from reduced advertising and distribution costs where combining companies have duplicated activities)
Cost synergy result from
- reducing duplication of functions and related costs,
- taking advantage of Economies of scale (arising from eg larger production volumes and bulk buying);
- taking advantage of Economies of scope (which may arise from reduced advertising and distribution costs where combining companies have duplicated activities)
Financial synergy result from
- financing aspects such as the transfer of funds between group companies to where it can be utilised best
- increasing debt capacity
Financial synergy result from
- financing aspects such as the transfer of funds between group companies to where it can be utilised best
- increasing debt capacity