Synergies can be classified between revenue synergies and cost synergies.
Revenue synergies are benefits from the merger or acquisition that can enhance revenue. They include:
- Cross-selling products to expanded customer base
- Opportunity to introduce new products into new geographical market
- Obtaining access to expertise or patents that enhance the product, which increases sales
- Price increases driven by increased market power
Cost synergies are benefits from the merger or acquisition that can lower costs. They include:
- Economies of scale: spreading fixed costs (ie operating expense) over a larger revenue base and reducing fixed costs as a % of revenue
- Saving costs on finance, IT, etc. by applying best practices
- Reducing variable costs (ie cost of goods sold or cost of sales) by Increasing bargaining power with suppliers and / or vendors
- Reducing supplier costs, vendor costs and / or distribution markup by acquiring suppliers, vendors, and / or distributors up the value chain