Financial synergies are most often evaluated in the context of mergers and acquisitions. Usually, M&A transactions M&A Synergies M&A Synergies occur when the value of a merged company is higher than the sum of the two individual companies. It is the potential additional value from combining two firms. With financial synergies, the payoff can take the form of either higher cash flows or a lower cost of capital (discount rate). Operating synergies can affect margins and growth, and through these the value of the firms involved in the merger or acquisition. Synergies related to operational metrics are referred to as operating synergies. Greater pricing power from reduced competition and… J.H.G. Gieskens AC CCM QT What Is the Difference Between Financial Synergy and Operating Synergy? These type of synergies relate to improvement in the financial metric of a combined business such as revenue, debt capacity, cost of capital, profitability, etc. Operating and Financial Synergy. There are three common types of synergies: revenue, cost, and financial. Financial Synergy. Operating synergy is an important reason why significant premiums are sometimes paid by strategic buyers. Included are the following: Operating Synergy Types and their Impact on post-merger Performance Lennart Horst Michael Junge ANR (791051) Master of Science Finance Supervisor: Drs. There are 2 types of Synergy – 1. Financial synergy is a type of synergies that results from lowering the cost of capital of by combining two or more companies. Operating synergy involves the integration of the combining companies in question after the acquisition transaction has been finalized. Operating Synergy. Operating Synergy – 2. Sources of Operating Synergy Operating synergies are those synergies that allow firms to increase their operating income, increase growth or both. In turn, with financial synergy the merged companies will not be operated as a single unit , and no significant operating economies will be expected. The merged companies will be operated as a single unit. Revenue Synergies. Mid-market business owners that are approached by strategic buyers should try to quantify the operating synergies that buyers might be able to realize post-acquisition. Synergy is based on the notion that merger of two companies can create greater shareholder value than if they are operated separately. A revenue synergy is when, as a result of an acquisition, the combined company is able to generate more sales than the two companies would be able to … Sources of Financial Synergy. We would categorize operating synergies into four types: Economies of scale that may arise from the merger, allowing the combined firm to become more cost-efficient and profitable. Financial Synergy occurs when the joining of two companies improves financial activities to a level greater than when the companies were operating as separate entities.