Synergies Objectives In Mergers
Economic and Competition Law Aspects of Mergers and Amalgamations
Synergy refers to a situation where the combined entity is more valuable than the sum of individual combining firms (2+2=5). The combination of operations can create a unique level of integration for the amalgamated entity spanning the entire value chain in the line of business. This enables the amalgamated entity to achieve substantial savings on costs and significantly enhancing its earnings potential.
Synergies can be expected to flow from more focused operational efforts, rationalization, standardization and simplification of business processes, productivity improvements, improved procurement, and the elimination of duplication. The main criteria for synergy lies in the ability of an organization to leverage on resources to deliver more than its optimum levels. By combining the strengths of two complementary organizations, not only one could achieve synergy but also eliminate the disadvantages each had. One of the most important reasons for mergers and amalgamations is to realize synergy; either through cost effective production bases or by cost savings and pooling of resources in R&D marketing and distribution.