Inside Synergy Assessment: Towards the Real Value of M&As
This chapter develops an effective synergy assessment model to support the process of synergy valuation and the success of pre-deal planning. The effectiveness of the synergy value depends from the valuation models, the valuation path and the assessment p
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Inside Synergy Assessment: Towards the Real Value of M&As
Abstract This chapter develops an effective synergy assessment model to support the process of synergy valuation and the success of pre-deal planning. The effectiveness of the synergy value depends from the valuation models, the valuation path and the assessment process. We highlight that the synergy assessment process and the effective use of synergy valuation models are critical points to cut the failure rate of mergers and acquisitions. We analyze the most relevant valuation models and the strategic factors affecting synergy: the type of synergy, the size of synergy, the timing of synergy and the likelihood of achievement. The effective use of synergy assessment models is critical to improve the success of mergers and acquisitions due-diligence. Keywords Mergers • Acquisition • Synergy value • Assessment process • Valuation models • Due-diligence
3.1
The Value of Synergy
The assessment of synergy value is a relevant issue in the M&A decision process. From the value of synergy often depends whether to complete or not the deal. Consequently, firms may provide estimation on synergy value to verify the effectiveness of the proposed M&A and to persuade stockholders and stakeholders (Ansoff 1965; Campa and Hernando 2004; Chatterjee 1992; Kiymaz and Baker 2008). Previous studies do not univocally use synergy value. A closer look reveals that the term is characterized by a strong depth of thought often by highly technical features (Latash 2008). Scholars have distinguished synergy expectations and synergy realizations, often neglecting the relationship between the two. Furthermore, scholars have often forgotten that it is costly to integrate firms in mergers and acquisitions (Datta 1991; Zhou 2011). Attempting to integrate several approaches, we can refer to synergy as the difference between the stand alone value of firms involved in M&A and the greater value of firms after M&A. Based on this notion, we can discriminate several “values”: “potential synergy”, the overall synergies that can be developed by the deal; “integration costs”, the costs needed to realize the synergies by integrating the firms; “expected synergy”, © Springer International Publishing Switzerland 2017 S. Garzella, R. Fiorentino, Synergy Value and Strategic Management, Contributions to Management Science, DOI 10.1007/978-3-319-40671-8_3
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3 Inside Synergy Assessment: Towards the Real Value of M&As
the synergy value assessed from firms in the due-diligence process; and “realized synergy”, the value actually achieved after the M&A integration (Garzella and Fiorentino 2014). “Synergy value” results from the difference between the potential synergy and the integration costs (Eccles et al. 1999; Fiorentino and Garzella 2015a, b). When the synergy management process is effective—in both the assessment and the realization steps—the synergy value can be seen as follows: SV ¼ RS ¼ ES ¼ ðPS ICÞ
SV ES PS IC RS
Synergy value Expected synergy Potential synergy Integration costs Realized s
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