Question

Give some examples of Financial synergy.

Answer 1

Answer:

occurs when the joining of two companies improves financial activities to a level greater than when the companies were operating as separate entities. Usually, M&A transactions result in a larger company, which has a higher bargaining power to get a lower cost of capital. Achieving a lower cost of capital as a result of a merger or acquisition is an example of Financial Synergy.

Synergy in M&A is achieved when the value added from the joining of two companies is greater than that of the companies operating as separate entities. A good way to think about it is the formula below:

V(A+B) > V (A) + V (B)