Question

Failing to __________ appropriately will result in too many employees doing the same work and prevent the new firm from realizing the cost synergies it anticipated

Answer 1

Failing to downsize appropriately will result in too many employees doing the same work and prevent the new firm from realizing the cost synergies it anticipated.

Cost synergy is the reduction in operating costs expected after the merger of the two companies. Cost synergies are cost savings resulting from increased efficiency in the post-merger company. Cost synergies are one of the three main types of synergies, the other two being revenue and financial synergies.

Mergers and Acquisitions (M&A) cost synergies could result from lower costs due to increased efficiencies in the two merged companies. These costs may include extra insurance, equipment, physical location, etc. It can also result from the economies of scale and bulk buying that arise from the combined size of the two companies.

Cost synergies can be measured by comparing comparable deals or by looking internally at each company. When evaluating each company, bottom-up analysis can be performed to determine how additional assets or operations will impact cost savings.

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