What Does Intangible Operating Synergies Mean?
Intangible operating synergies refer to the performance advantages of multi-business firms that lead to an increase in efficiency and profitable growth, but that cannot be isolated and are therefore intangible. Synergies increase the quantum of aggregate prospective free cash flows, reduce the risk of cash flows and create growth opportunity and strategic advantages.
Divestopedia Explains Intangible Operating Synergies
Intangible operating synergies relate to the operating activities of a business. These are synergies that cannot be attributed to any specific factor. They cannot be easily segregated, identified or analyzed on an individual basis. As a result of these factors, there is a reduction in business risk or an increase in growth opportunities.
For example, the acquisition of a leading-edge technology eliminates the time lag involved in developing and implementing a new technology. Intangible operating synergies lead to a reduced level of risk in the achievement of prospective operating targets. The acquisition of a supplier of critical input lowers the risk of availability of the input. Similarly, access to new technology creates a general strategic advantage for the acquiring firm and entry into foreign markets enhances the firm's long-term growth prospects.
Intangible operating synergies can be quantified by using capitalization rates that reflect the risks and opportunities of a business on an intrinsic basis (i.e. without any acquisition) and by adjusting them for risks and opportunities that arise from post-acquisition intangible operating synergies. Theoretically, intangible operating synergies relate to the operating risks of a business and do not directly impact a firm's capital structure or financing decisions.