Motives of M&A and Deal Synergies
This chapter describes various theories of M&A. Insights have been provided into value creation, value-neutral, and value reduction theories of M&A. The rationale behind a company entering into a merger or acquisition deal is discussed extensively stating the benefit anticipated as synergy. A merger is said to give rise to synergy when the value of combined entity is larger than the sum of value of individual organizations. Synergy can arise from various sources like economies of scale, economies of scope, pricing power, etc. Deal synergy can be evaluated by using discounting benefits method or by subtracting the sum of value of combined entity from the value of combined entity.