Synergies Test Flashcards
Competition/Pricing Porters Five Forces
Threat of new entrants? If entry barriers are low, new entrants can compete with established companies, squeezing profit
Think: capital requirements, economies of scale, brand loyalty, access to distribution channels
Bargaining power of suppliers to dictate terms such as pricing, quality, availability of materials?
If suppliers have significant power, they can charge higher prices/limit supply, squeezing profit margins of companies
Think: many/few suppliers, uniqueness of product/service supplied, switching costs between suppliers, supplier concentration (few suppliers but many buyers)
What is the bargaining power of customers? The more power buyers have, they can demand concessions and reduce profit
Think: buyer concentration (few large buyers), price sensitivity (buyers who are sensitive and have alternatives), high/low switching costs, product differentiation (less differentiation means easier to switch)
Likelihood of customers finding substitute products? If substitutes are available, industry’s ability to increase price/retain customers is lower
Think: availability of subs, relative price of substitutes, switching costs
What is existing rivalry between competitors? High rivalry means more aggressive competition for market share
Think: number of competitors, industry growth rate (in slow growing industries, companies compete fiercely for limited market share), product differentiation (similar products = more competition), fixed costs (high fixed costs industries compete more to cover costs), exit barriers (high exit barriers, like sunk costs, keep companies in the market)
use profit increase that your product gives to the buyer, to determine the upper limit of the price.
Cost Profiles
Variable + Fixed
Distribution costs: real estate
IT costs: IT usage and development
Marketing costs: less marketing costs due to lower competition
Corporate: layoffs (personnel and office space)
Financial: cheaper borrowing costs
Automotive Synergies
Revenue: increased revenues and margins, customers
Distribution: production economies of scale/procurement/operations
Streamlined operational costs:
Back Office: R&D for new capabilities
Technology: shared technologies and data use
Airlines
Revenues: expanded network + customer loyalty programs/retention
Distribution: more efficient fleet operations, facilities (airport gates)
Technology: data analytics
Financial strength to weather market downtowns
Consumer goods (bread/smartphones/clothes) synergies
Revenues: enhanced brand portfolio (cross selling,
Distribution: economies of scale and negotiating supply chains and manufacturing, store location prices
Tech: innovation and product development
Energy Synergies
Revenues: access to new geographies and markets
Distribution: consolidation of facilities, pipelines, or power plants
Capital access: for large scale projects
Risk diversification: not only one revenue stream
Health care
Revenues: expanded patient base
R&D costs: accelerated development new drugs, treatment, medical devices
Enhanced technologies: data for better health care
Industrial goods (steel, welding equipment, conveyor belts) synergies
Revenues: increased revenue streams
Costs: manufacturing facilities and standardizing processes
suppliers/distributors: shared suppliers and distribution networks share costs
Product diversification: risk
Mining synergies
Revenues: resource access; market power: controlling pricing
Environmental compliance: sharing resources to meet compliance obligations
Production costs: consolidating equipment, facilities and transportation networks
Utilities Synergies
Revenues: broader service areas and market reach
Infrastructure efficiency: merging grids, powerplants, pipelines
Shared cost maintenance
Tech integration: renewables, advanced energy
Financial services/PE synergies
Revenue:
More customers cross sold
Higher margin products
Costs:
Distribution: bank branches
Back office: unification of systems (credit scoring)
Financial: cheaper cost of capital due to larger size
Risk synergies: more diversified credit portfolio due to different product focus
Telecom
Revenues: loyalty programs, increased customer base to bundle goods
Operational costs: sharing infrastructure improves coverage and reduces costs
Tech costs: joint investment in 5G, IOT, communication technologies
Retail synergies
Revenue: expanded product range; customer reach
Supply chain costs: streaming logistics and warehousing costs
Technology: integrating e-commerce and sales data
