Question

What is synergy? What might cause this result? Is there a tendency for management to over- or underestimate the potential synergistic benefits of a merger?

Short answer

Synergy refers to the situation in which whole is more than the sum of parts.

This result is achieved by the elimination of overlapping functions of production and marketing, as well as combining various engineering capabilities.

There is often tendency for management to over or underestimate the benefit.

Step-by-step solution

Explanation on Merger

Under merger, one business entity combines with other business entities, and continues to operate in the name of acquiring company.

Synergy Effect

Under the synergy effect, “2+2=5”, which indicates that sum of two numbers is less than the whole numbers. Synergy effect indicates that when two or more process companies combine, it provides higher cumulative effect, as compared to individual effect.