Acquisition synergy
Acquisition synergy is the incremental benefit expected from combining businesses compared with keeping them separate. It can arise from cost savings, revenue opportunities, financial effects or other specific changes, but estimates must allow for timing, tax, integration expenditure and execution risk. Value the incremental cash flows consistently and avoid counting savings already included in the target's stand-alone forecast. A claimed synergy belongs to neither party automatically: the acquisition price and financing determine how value is shared.
Worked example
A merger is expected to save $3 million a year for four years; at a stated annuity factor of 3.17 the present value is $9.51 million. If integration costs $2 million now, estimated net synergy is $7.51 million before other effects.
Common mistake
Adding the gross savings without integration costs or counting the same saving twice in stand-alone and combined forecasts.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Direct | September 2026–June 2027 |