In business management, synergy describes the extra value created when two companies or business units combine.
The concept is often summarized by the idea that the combined result can exceed the value of the parts considered separately. Potential sources include shared distribution, lower purchasing costs, complementary technology, cross-selling, stronger bargaining power, or reduced duplication of corporate functions.
Synergy is commonly discussed in mergers and acquisitions, but the term also applies to partnerships, teams, and integrated business operations. It is a claimed benefit, not a guaranteed result. Difficult integration, incompatible systems, employee departures, or cultural conflict can prevent expected synergies from appearing.
Analysts may distinguish revenue synergies from cost synergies. Revenue synergies aim to increase sales or pricing power, while cost synergies aim to reduce expenses. Acquisition valuations often depend on whether these projected benefits are realistic and how quickly they can be achieved.