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What is Corporate Synergy?

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  • Written By: Jim B.
  • Edited By: Melissa Wiley
  • Last Modified Date: 21 September 2016
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Corporate synergy occurs when two companies become one via either a merger between companies or by one company acquiring another. The resulting gain in efficiency and reduction in costs is the synergy that the newly formed company hopes to gain. In most cases, even a merger has one company that is in a stronger position and seeks to gain the most by merging with the other company. What the new company gains in corporate synergy it may lose in market value if investors feel that it has been weakened by the merger.

The basic idea between corporate synergy is that two companies may be able to come together to form something greater than what they were able to achieve as individual entities. On some occasions, two companies may be getting together purely out of mutual benefit, with both coming from a position of strength. More often than not, one or both of the companies may be struggling a bit on its own, and the synergy it gains may just be the byproduct of a business move necessary for survival.

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There are many ways in which a newly merged company can achieve corporate synergy that streamlines day-to-day operations and strengthens the bottom line. The most obvious way is through a smaller work force, created by laying off a portion of the work force now considered unnecessary. Costs are also reduced by combining the resources owned by the two companies, cutting the need for the unified company to seek costly outside help.

Another way that corporate synergy is achieved is if the two companies that combine complement each other. This can occur when a company that produces a certain product merges with a company that has a strong distribution element to it. Perhaps a company that has national exposure might merge with one that has an international scope, thus broadening the opportunities for business. Synergy is achieved any time that the new company gains some benefit that it couldn't have achieved without the merger.

Brand expansion is perhaps the most beneficial aspect of corporate synergy from a marketing standpoint. Any time that a business can gain exposure to a larger portion of its potential clientele than it might have achieved in the past, it is generally a positive turn of events, and the news of a merger can usually create that result. This can help offset any perception of weakness by market forces that might be attached to the new business.

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