It may sound like a corporate buzzword, but a synergy in business is actually an important concept for businesses in the process of being merged with another entity. In essence, the definition of synergy is a potential benefit achieved by combining the value and performance of two entities.
Synergies often represent:
- A cost saving opportunity for business owners
- A revenue growth opportunity for buyer
- Access to an employee or management team that will strengthen the business
In the end, synergies in business are any perceived change that will occur when two businesses are joined. These changes are largely positive, but can also be negative, and will often have a lasting impact on the future growth and performance of the new amalgamated business.
Want to learn more about synergy in business? Nash Advisory can let you know exactly what your business will gain for a merger or acquisition. For expert business advice, contact us on [phone].
Types of synergies in business
The list of synergies available to buyers is endless, and will largely depend on the businesses and the industry in question. Here are a few that we commonly discover over the course of buying and selling businesses for our clients.
Revenue synergy can help existing businesses galvanise their sales and revenue by scaling up their business. The acquisition of a new company offers existing businesses plenty of scope to add value by accessing new customers, expanding product lines, and growing their brand in new markets.
Here are the most common revenue synergies that new business can inherit from an acquisition:
- Access to a new groups of customers that will buy existing products
- The ability to sell new products to existing customers
- Intangible assets like branding and marketing collateral
- The ability to perform better service, and therefore enable price rises
Expense synergies are usually geared towards finding savings. Whether these savings are found through expansion or by harnessing economies of scale, the merger of two businesses should yield plenty of opportunities for synergy, again depending on the industry.
Some of the most common expense synergies include:
- Using the full benefit of offices and warehouses leasing
- Taking out insurances across a larger group of companies or products
- Finding savings on freight prices by shipping in bulk
- Cutting down expenses by analysing the efficiency and cost of external providers
- Streamlining IT systems and finding the most valuable provider
- Selling off surplus assets to raise cash following a merger
Companies at all stages need their own specific departments. Once two businesses merge, these departments do not need to be doubled up, and can be often be amalgamated or dissolved, leading to cost savings as the business grows as one entity.
Some key management synergies in business include:
- Amalgamating two teams into one in fields like accounting, warehousing, logistics, and marketing
- Reorganising middle management teams to achieve future goals
- Saving on human resources costs when some roles are made redundant
At Nash Advisory, we take to time to find synergies that may not be immediately apparent. By taking a holistic view of your business in preparation for sale, we are able to identify left-of-field synergies that will appeal to a range of interested buyers.
Here are some left-of-field synergies that may present themselves over the course of a sale:
- Identifying licenses or permits which allows new opportunities for the prospective buyer
- Access to intellectual property which is not currently being exploited
- Introducing a new team of employees or management to the business with the ability to address some weak areas
- Access to bank finance or capital markets, reducing funding costs and increase the opportunity for future growth