Explain What Merger And acquisition Professionals Mean by Sy

Explain What Merger And acquisition Professionals Mean by \"Synergy\". Why is Synergy Difficult to achieve ? Provide an example Of a merger or Aquisition in which one of the parties was from outside your home country. In describing the merger and aquisition,was synergy discussed? If so, describe where they belived that synergy would be found . Do you Think they will be able to achieve that Synergy ??

Solution

In M&A parlance, synergy refers to the situation where, sum of value of individual firms is lower than the value of the merged firm. In mathamtical form,

Value of A + Value of B < Value of (A + B).

Synergy is difficult to achieve due to implicit costs involved in and arising from a merger or acquisition. Cultural shock is one of such disruptions which actively prevent synergy. It is especially prevalent for cross-border M&A where the merging firms have different work culture, organizational norms and ethos, and post-merger, the employees find it difficult to merge to a common standardized work culture.

An example of M&A is acquisition of Autonomy Corporation (UK) by Hewlett-Packard (HP) in 2011. Autonomy had developed Knowledge Management tools and applications, which were useful for HP\'s software support business. So HP thought the acquisition would add synergy in HP\'s enterprise business solutions segment.

However, it has now been established that the deal was a loser for HP who gained almost nothing from the acquisition. Autonomy was overvalued during acquisition and the supposed synergistic elements have been missing ever since the acquisition.