Enterprise Growth Strategies — Entrepreneurship STD 12 Commerce — Question

Synergy implies a condition wherein 2 + 2 = 5, i.e. the combined value of the resulting firm exceeds the individual value of the merging firms. So, V(xy) > V(x) + V(y).Synergy is the most common reason, why companies opt for mergers and acquisitions.
Synergy can take the following forms:

1. Operating synergy: These accrue in the form of cost savings through economies of scale or because of increased turnover leading to increased profits.
2. Financial synergy: This is the direct result of financial factors such as lower taxes, higher debt capacity or better use of idle resources.