What Does Operating Synergy Mean?
Operating synergy is when the value and performance of two firms combined is greater than the sum of the separate firms apart and, as such, allows for the firms to increase their operating income and achieve higher growth.
Divestopedia Explains Operating Synergy
Operating synergies can arise from the following:
- Economies of scale;
- Greater pricing power and higher margins resulting from greater market share and lower competition;
- Combination of different functional strengths such as marketing skills and good product line; or
- Higher levels of growth from new and expanded markets.
Operating synergies are achieved through horizontal, vertical or conglomerate mergers. Mergers of firms which have competencies in different areas such as production, research and development or marketing and finance can also help achieve operating efficiencies.
Operating synergy is an important reason why significant premiums are sometimes paid by strategic buyers. Mid-market business owners that are approached by strategic buyers should try to quantify the operating synergies that buyers might be able to realize post-acquisition. This can go a long way to obtaining a premium valuation upon exit.