Synergistic Value in Corporate Mergers
Synergistic value is the additional value created in a merger between two companies due to synergies that can be exploited by the merged firms. Typically, these synergies come in the form of increased revenue or lower expenses, or a combination of both — thereby increasing the merged firm’s income and cash flow.
Typically, in business valuation, we consider a hypothetical willing buyer and a hypothetical willing seller in our analysis of the subject company’s fair value and/or fair market value. Synergies aren’t typically considered in a concluded value because that would require using a specific (not hypothetical) buyer and seller. However, synergies exist in transactions in the real world.
For example, take Elon Musk’s purchase of Twitter last year. The control premium Musk paid was approximately 38% greater than the publicly traded price on the announcement date. While not a merger in its truest sense, this premium price hinged on Musk’s belief that he could extract more revenue from the Twitter platform through a combination of revenue-generating and expense-reducing measures. That said, while synergies can be anticipated and paid for in a transaction, the ultimate realization of synergies happens post-transaction and is more a product of successful execution than financial modeling and math.
As you are all aware, Marcum and Friedman recently merged (September 1, 2022) and the combined entity now has $1.1 billion in annual revenue, positioning us to be the 12th largest accounting firm in the United States (note: updated industry rankings are due in March 2023). The merger also integrated the Friedman and Marcum Valuation Forensic and Litigation Support groups (VFLS), which now in totality includes just under 200 professionals across the country and bolsters the Marcum VFLS presence in New Jersey, Pennsylvania, and New York.
The Marcum and Friedman VFLS leadership teams worked together for more than four months pre-merger and another five months post-merger to integrate our existing practices and professionals and to enhance the services we bring to our valued clients.
Our VFLS integration has been very successful, and the realized synergies have been greater than originally anticipated. Our New Jersey matrimonial group has doubled in size, and we now operate from four offices in four different counties within the state, sharing and developing staff and integrating our knowledge and client bases. We also bring much more enhanced and complete industry specialties including digital assets, private equity, cannabis, construction, food and beverage, real estate, consumer products, energy, healthcare, etc., with valuation, forensic, and litigation support experts immersed in these industries.
So, look for us when you see us at events and ask us how our integration is going. We’re more than happy to talk about it with you. Hoping to see you all soon!