Synergies Should be the Justification for Acquisitions - Term Paper Example

The paper “Synergies Should be the Justification for Acquisitions” is a meaningful example of the term paper on business. “The key premise to synergy is that the whole will be greater than the sum of its parts” (Sherman and Hart 2006:15). Literally, synergy means the process of working together or a 2 plus 2 equals 5 effects. Synergy is widely used by buying companies to justify the acquisition of another firm as they are after the value that is being created by joining two or more companies. However, using synergy as a justification to acquire another company is not always accepted as true since they are many probable motives behind an acquisition. Our discussion will focus on the strength of synergy as a justification for acquisition. This includes discussions on company growth requirements, operational and financial synergies, areas of synergy, revenue-generating synergies, and the rationale and justification for merger and acquisition. We will conclude with the most important aspects of synergy and advantage or disadvantage of synergy as a justification for acquiring another company.

Synergies in Merger and Acquisitions
The word synergy is derived from synergism, which in biological science means collaboration between various organs. Synergy signifies the strategic incentives that are gained when two or more business units are joined in the collection of a group of companies. Operations become better organized in the sense that they create more value or reduced costs. The joint result is more beneficial than the sum of the individual strategies. “The opportunities of synergies are legion” Bruner and Perella (2004:325). Igor Ansoff popularized the expression and used it as an underlying principle to describe the structure of groups of companies. The 1950s and 1960s saw ascend of many corporations such as a range of incongruent business units. At the time, the assessment was done and the resolution made at the group management level. Consequently, group management is likely to be large and to comprise a number of staff departments. The savings as a result of ‘shared costs’ were hence significant, and it was thus simple to point to synergies in the group management functions.