Corporate synergy refers to a financial benefit that a corporation expects to realize when it merges with or acquires another corporation. Corporate synergy occurs when corporations interact congruently.

This type of synergy is a nearly ubiquitous feature of a corporate mergers and acquisitions

Mergers and acquisitions

Mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or...

 and is a negotiating point between the buyer and seller that impacts the final price both parties agree to.

There are two distinct types of corporate synergies:

Revenue

A revenue synergy refers to the opportunity of a combined corporate entity to generate more revenue than its two predecessor standalone companies would be able to generate. For example, if company A sells product X through its sales force, company B sells product Y, and company A decides to buy company B then the new company could use each sales person to sell products X and Y thereby increasing the revenue that each sales person generates for the company.

Cost

A cost synergy refers to the opportunity of a combined corporate entity to reduce or eliminate expenses associated with running a business. Cost synergies are realized by eliminating positions that are viewed as duplicate within the merged entity. Examples include the head quarters office of one of the predecessor companies, certain executives, the human resources department, or other employees of the predecessor companies. This is related to the economic concept of Economies of Scale

Returns to scale

In economics, returns to scale and economies of scale are related terms that describe what happens as the scale of production increases in the long run, when all input levels including physical capital usage are variable...

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