One of the key goals of many mergers and acquisitions is to ensure the combined companies have a higher value than the two individual companies before the merger and integration. 

What are synergies? 

Synergies are how a combined company creates value, however, value destruction can occur too. 

The different types of synergies include cost, revenue, financial, management, and operational synergies. During the due diligence process, companies assess the potential for synergies and establish a post-merger integration strategy to ensure these synergies are realized. 

Types of synergies in mergers and acquisitions

Synergies in mergers and acquisitions can be driven by asset consolidation and supply chains, driving efficiency with the effective use of the combined resources or increasing the combined company’s value through less tangible but important drivers like an improved company culture or increased R&D capabilities. 

M&A synergies can be divided into hard and soft synergies, which in turn can be categorized into cost, revenue, financial and management and operational synergies. Understanding the potential synergies available in M&A enables buyers and sellers to identify potential synergies in the target sourcing and due diligence phases of a merger or acquisition. 

Hard synergies

Hard synergies in M&A are the quantifiable cost savings and revenue increases that result from combining two companies. These synergies are typically easy to identify and measure. 

Hard synergy metrics are a key factor used to value M&A deals and to evaluate the success of a merger or acquisition. This non-comprehensive list includes examples of the different types of hard synergies that M&A can provide. 

1. Cost savings

Cost savings may arise in many areas of the combined company where the existing systems, infrastructure, relationships, talent and intellectual property can be optimized, rather than duplicated per the pre-merger state. 

Examples of cost savings may include: 

Supply chain efficiencies

A merged company may have greater buying power and the ability to negotiate discounts or consolidate suppliers. Logistics efficiencies, enhanced inventory management and sustainability practices can also lower supply chain costs. 

Improved sales and marketing

Broader distribution, cross-selling and up-selling, and access to new markets may allow marketing departments to find greater efficiency and creativity. 

Research and development

The knowledge and capabilities of the two companies may combine to produce new products or services with a higher value, or to increase quality without increasing costs. 

Human resources efficiency

Some roles may change as teams and departments combine. In particular, C-suite roles will not need to be duplicated. 

Lower intellectual property costs

Access to patents and other intellectual property rights can be shared. 

IT integration

When two companies combine, there is an opportunity to consolidate IT infrastructure and achieve further efficiencies through application rationalization. IT cost savings are often among the largest contributors to overall cost savings in mergers and acquisitions. The combined company is able to operate more efficiently, with lower overhead. 

Application rationalization reduces the number of IT applications across the merged entities, which can reduce the IT footprint of the combined companies by 20-50%. This process reduces costs relating to software licences, support and maintenance of applications. For example, customer relationship management (CRM), financial management and enterprise resource planning (ERP) systems can be streamlined to eliminate redundancies. 

IT infrastructure consolidation merges assets and resources like data centers, networks, servers and telecommunications infrastructure, which can achieve cost reductions between 10-30%. By consolidating hardware and vendor contracts, the combined company can reduce duplicated expenses and gain negotiation leverage with suppliers. 

Example: Cisco acquires Splunk (2024)

Cisco acquired Splunk in March 2024 with the goal of integrating Splunk’s cybersecurity and observability platforms, consolidate product lines and development teams and accelerate innovation and operational efficiency. 

Example: Hewlett-Packard Enterprise and Juniper Networks (2024)

Hewlett Packard Enterprise agreed to acquire Juniper Networks in January 2024, with regulatory approvals in August 2024 in the UK and Europe, but approval still pending in the US (April 2025). Through the integration of Juniper’s secure, AI-native solutions, the combined company will continue to innovate to provide enterprise and cloud services, achieving synergy through IT integration and innovation. 

2. Revenue synergies

Revenue synergies refer to the ability of the combined company to grow revenue streams through new products and services, effective access to patents and entry to new markets. 

Patents

A merger or acquisition provides the combined company access to the target’s intellectual property, which may allow the merged organization to innovate to create new and improved products or services. 

Complementary products and services

Combining complementary products can create a competitive advantage and a more valuable product with a higher price. 

Complementary geography and customer base

The existing customer base of the combined company is larger and may extend into new geographical areas. Increased access to customers may lead to higher revenue. 

Example: LinkedIn and Microsoft (2016)

LinkedIn was acquired by Microsoft in June 2016. Integrating LinkedIn with the Microsoft Office Suite enabled LinkedIn profile data to be directly accessible within Outlook, improving workflow automation, networking efficiency, and collaboration across platforms. The integration boosted professional networking user engagement by around 30%. Likewise, ad revenues grew across both platforms, with integrations between LinkedIn and Bing providing additional data to inform targeting. 

3. Financial synergies

Financial synergies come about when the combined company improves its capital structure compared to the pre-merger organizations. This can come in the form of tax savings and debt capacity, reducing the cost of capital and resulting in a higher valuation. 

Diversification and cash flow

If the combined company increases market share and generates higher revenue and cash flow, it will potentially have more stable cash flows and a lower cost of equity. 

Increased debt capacity and tax benefits

The larger combined company may be able to borrow more than the standalone companies pre-merger. An increased debt capacity leads to the potential ability to deduct more interest expenses from tax. Any net operating losses from the target company can also be written off. 

Example: Nationwide Building Society acquired Virgin Money (2024)

In October 2024, Nationwide Building Society acquired Virgin Money, with plans to continue operations as a separate legal entity in the mid-term before integrating into the Nationwide group. The acquisition expands Nationwide’s customer base to increase market share, with flow-on financial synergies anticipated as integration proceeds. 

Soft synergies

Soft synergies also drive revenue increases and financial improvements due to enhanced capabilities of the combined company, rather than direct cost reductions. Soft synergies are less tangible, qualitative benefits that can be difficult to quantify precisely. 

Examples of soft synergies include: 

• Enhanced brand value

• Stronger corporate culture

• Improved customer loyalty

• Knowledge and skill transfer

• Increased innovation potential

Soft synergies are typically realized over one to three years post-acquisition or merger. A robust post-acquisition integration strategy can support the realization of soft synergies. 

Example: Facebook acquires Instagram (2012) 

When Facebook acquired Instagram, it gained access to a rapidly growing user base and a team of top-tier developers, enabling the company to target a younger audience. The acquisition enhanced Facebook (Meta)'s advertising revenue potential.

How to realize M&A synergies

When preparing for a deal, it pays to underestimate potential synergies to ensure that the valuation allows for value creation in the future. Keep synergies realistic and achievable — then optimize the integration process to create added value. 

1. Focus on quick wins

To ensure the combined company's value, it’s important to show immediate benefits to investors. This means taking action to realize cost synergies first. The first focus areas may be streamlining supply chains and consolidating IT systems. 

While a plan for cultural integration and skill transfer should begin early, to realize the benefits takes time. 

2. Stay focused on key objectives

There’s usually a central driving force behind a merger or acquisition. Stay focused on achieving this goal and resist getting caught in the details and trivialities of combining two organizations.

3. Follow an integration plan

Integration planning should begin during the due diligence phase. This plan maps out how the two companies will begin to operate as one, including reporting lines, harmonization of systems, and combining teams. Effective and transparent communication throughout the integration process is critical to manage change and ensure a smooth transition. 

4. Track progress and identify opportunities

Track progress against the integration plan and be open to unforeseen opportunities. A purpose-built post-acquisition integration platform can simplify tracking integration projects and enable seamless progress reporting. 

5. Understand the new customer base

When two companies combine, the customer base grows and changes. Take the time to understand the motivations, needs, and the relationship the newly combined company has with customers. There may be opportunities to upsell, cross-sell or create new products that meet customer needs. 

Prepare to succeed with M&A synergy — a well-planned integration strategy can prevent dis-synergy

Companies that fail to integrate may experience negative synergies. Identifying risks and opportunities during the due diligence process is critical to creating and executing a successful integration strategy. 

With Ansarada’s purpose-built platform, integration planning begins with due diligence. Keep all critical information in one central location, so it’s easy to engage the experts, operational staff and stakeholders that will play central roles in the integration planning and execution. 

More on M&A: 

• Guide to AI in M&A deals and processes

• Post-merger change and project management

• Top 10 M&A integration risks