Valuation
Synergies
Also known as: Cost synergies, revenue synergies
The additional value a buyer expects to create by combining your business with theirs — shared customers, eliminated overhead, or cross-selling opportunities. Strategic buyers use synergies to justify paying a premium.
WHY IT MATTERS
Synergies are the reason a strategic buyer will pay more than a financial buyer for the same business. When a larger company acquires yours, they expect to create value that neither company could generate alone — by cross-selling to each other’s customers, eliminating duplicate overhead, or combining supply chains for better pricing. Cost synergies (cutting redundant staff, consolidating offices, merging IT systems) are easier to quantify and usually show up in the first year. Revenue synergies (selling your product to their customers, or vice versa) take longer and are harder to predict. For the seller, synergies matter because they justify a premium multiple. A strategic buyer who can save $2 million a year by merging your operations into theirs can afford to pay more than a PE firm that’s underwriting standalone cash flow. But synergies are the buyer’s value — not yours. The negotiation is about how much of that future value the buyer shares with you at closing versus keeping for themselves.