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Synergies

Synergy in general is the creation of a whole that’s greater than the sum of its individual parts, and in finance it’s no different: synergies are the ways in which companies can benefit from combining because they have overlapping areas. This might be complementary technology or geographical footprints that would allow combining companies to increase their revenues. Synergies can also come from areas where duplicate costs could be eliminated – for example, one company only really needs one head office (cheaper than two) and the marketing budget for one large brand could be lower than for two small brands. The former are called “revenue synergies” (as they boost revenue), while the latter are called “cost synergies” (as they decrease costs).

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