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Financial synergy is the benefit accomplished by the combination of more than one company through merger. A merger can increase reveneue or reduce cost for example. Usually the company's share price after merger increases which benefits the shareholders.
Financial synergy is when the combination of two firms results in greater value than if the they were to operate separately .(2+2=5) financial synergies are most often evaluated in the context of mergers and acquisitions. These type of synergies relate to improvement the financial metric of a combined companies e.g debt capacity, revenue and profitability.
Examples of positive financial synergies include:
* increased revenue through large customer base
* Talent and technology harmonies
Financial synergies can also come from the post benefit acquisition.
* greater cash flows
* lower cost of capital
* tax benefits etc.
When evaluating a merger or an acquisition, positive synergies will normally produce a successful result.
When two firms combine/merge and the value of the combined firms is greater than their individual values, its financial synergy. It occurs due to combination of their efforts and resources and reduction in common costs.
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