What are synergies and what are the two types?
Model answer
Synergies are the incremental value created by combining two firms. Cost synergies - eliminating duplicate functions, facilities and headcount, plus purchasing scale - are more reliable and easier to realize. Revenue synergies - cross-selling, new markets, pricing power - are larger in theory but far less certain, so buyers discount them.
⚠ Common wrong answer: "Revenue synergies are the more dependable kind — selling more is easier than cutting costs." Why it fails: Backwards — cost synergies are within management's direct control and reliably quantifiable, while revenue synergies depend on customer behavior and cross-sell execution. That's exactly why buyers heavily discount revenue synergies.
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