There are several ways in which an acquisition of a company can generate a total value that is greater than the combined value of the two companies:
Synergies: When two companies merge or acquire each other, they can often achieve cost savings and revenue enhancements by eliminating duplicative expenses, combining complementary products or services, and leveraging their combined resources and expertise.
These synergies can create value that exceeds the sum of the two companies values.
Growth opportunities: An acquisition can also create value by providing the acquiring company access to new markets, customers, technologies, or other growth opportunities that were not available to it before.
Financial benefits: An acquisition can also create value by providing the acquiring company access to previously unavailable financing or other economic benefits.
For example, an acquiring company may be able to use its assets as collateral to secure debt financing, or it may take advantage of the acquisition’s tax benefits.
Strategic fit: An acquisition can also create value if the acquiring company believes it will be an excellent strategic fit and help it achieve its long-term goals.
It’s important to note that not all acquisitions create value, and it can be challenging to predict whether a particular purchase will create value accurately.
Factors such as the financial performance of the companies involved, market conditions, and the potential for synergies and growth opportunities all play a role in determining whether an acquisition will create value.
Author, Rune Holsvik