Analysis of Synergies: Financial, Managerial, and Operational Report

This report delves into the concept of synergies, specifically focusing on financial, managerial, and operational synergies. It begins by defining financial synergies, highlighting how they can reduce capital costs and enable mergers to facilitate growth and risk reduction through diversification and internal capital markets. The report then examines managerial synergies, emphasizing the importance of efficient management teams, and how they can be incorporated into corporate acquisitions, although often with limited disciplinary forces. Finally, it explores operational synergies, particularly economies of scale, and their impact on reducing administrative and production costs, optimizing resource utilization, and enhancing operational efficiency. The report references key academic sources and provides a comprehensive understanding of these critical business strategies.

SYNERGIES

TABLE OF CONTENT
Different types of synergies ............................................................................................................1
REFERENCES ...............................................................................................................................1

Different types of synergies
There are three types of synergies which are as follows:
Financial: It is the result of low capital cost and mergers can provide an effective solution to
grow with more assets and higher debt capacity. Unrelated mergers can minimise risks by
enhancing diversification. The development of internal capital market can also lower cost by
efficient allocation. However there are very limited evidence of risk reduction from merger. Thus
instead of financial mergers operating synergies are considered as key factor for creating
mergers.
Managerial: This synergy emphasises that if management team is not efficient then it will be
easily and quickly replaced by teams of other organisation. (Tantalo and Priem, 2016)
Managerial synergy forms the basis for corporate acquisitions however in mergers it results in
low disciplinary forces. Due to this reason another appropriate synergy called operational is
used.
Operational: It includes economies of scale which describes per unit production cost depends
upon size of organisation. The scale and size of company and outputs play key role in this
synergy. It directly reduces the administrative, sales and other organisational expenses.
Economises of scale also affect operational efficiency, research and development, supply chain
transaction costs. The scaling offers a great advantage to ensure the optimised utilisation of
resources (Haskel and Westlake, 2018). This synergy depends upon physical consolidation of
operations and hence is influenced by cost structure of companies. It becomes more prominent in
production or manufacturing based industries in which similarity of operations make it more
easy and convenient to realise the cost minimising synergies.
REFERENCES
Books and Journals
Haskel, J. and Westlake, S., 2018. Capitalism without capital: the rise of the intangible economy.
Princeton University Press.
Tantalo, C. and Priem, R.L., 2016. Value creation through stakeholder synergy. Strategic
Management Journal. 37(2). pp.314-329.
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