Revenue synergy is one of the most cited—and most misunderstood—ideas in mergers and acquisitions. It refers to additional sales a combined business may generate because the two companies together can cross-sell, bundle products, enter new markets faster, or improve pricing. In valuation, however, revenue synergy matters only when it becomes incremental profit and cash flow after execution costs, timing delays, and risk are considered.

1. Term Overview

• Official Term: Revenue Synergy
• Common Synonyms: Revenue synergies, sales synergies, commercial synergies, top-line synergies, go-to-market synergies
• Alternate Spellings / Variants: Revenue-Synergy, revenue-synergy
• Domain / Subdomain: Finance / Corporate Finance and Valuation
• One-line definition: Revenue synergy is the additional revenue a combined business can generate that the separate businesses could not have generated as effectively on their own.
• Plain-English definition: When two companies combine, they may be able to sell more, sell to more customers, sell at better prices, or sell through stronger channels. That extra sales potential is called revenue synergy.
• Why this term matters:
• It can help justify an acquisition premium.
• It influences valuation, deal pricing, and board decisions.
• It affects integration planning and post-merger accountability.
• It is often overestimated, so understanding it prevents bad deals.

2. Core Meaning

At first principles level, Revenue Synergy is about the idea that 1 + 1 can create more than 2 on the sales side.

If Company A and Company B remain separate, each has its own products, customers, distribution, pricing power, and brand reach. If they combine, they may create new selling opportunities that did not exist before. For example:

• A software company buys a cybersecurity firm and cross-sells both products to the same clients.
• A manufacturer acquires a local distributor and gains instant access to a new region.
• A bank combines with an insurance business and sells insurance to its banking customers.

What it is

It is the incremental revenue opportunity created by combination.

Why it exists

It exists because businesses often have complementary strengths, such as:

• different customer bases
• different products
• different geographies
• stronger combined brands
• deeper distribution networks
• better pricing or bundling ability

What problem it solves

In deal analysis, it helps answer:

• What upside exists beyond stand-alone growth?
• Can the combined company earn more than the sum of its parts?
• Is the acquisition price justified?

Who uses it

Revenue synergy is commonly used by:

• corporate development teams
• CFOs and strategy teams
• investment bankers
• private equity investors
• equity research analysts
• consultants
• boards and deal committees
• lenders and credit analysts, usually with caution

Where it appears in practice

You will see it in:

• merger models
• discounted cash flow valuation
• fairness opinion materials
• investment committee memos
• board presentations
• post-merger integration plans
• investor presentations and earnings discussions
• equity and credit research reports

3. Detailed Definition

Formal definition

Revenue Synergy is the incremental revenue expected to arise from combining businesses, relative to the revenues those businesses would have generated independently under a realistic stand-alone case.

Technical definition

In valuation work, revenue synergy is usually modeled as:

• incremental revenue
• minus cannibalization
• multiplied by the relevant contribution margin
• minus incremental costs required to achieve that revenue
• converted into after-tax cash flow
• discounted for time and risk

So the true value of revenue synergy is not the revenue itself, but the present value of the incremental cash flows created by that revenue.

Operational definition

Operationally, management treats revenue synergy as a set of specific initiatives, such as:

• cross-selling Product A to Target B’s customers
• bundling overlapping services
• expanding through a newly acquired channel partner
• improving price realization through stronger market position
• reducing churn by offering a broader solution set

Each initiative should have:

• an owner
• a timeline
• a target customer group
• a price assumption
• a conversion rate assumption
• a cost-to-achieve estimate
• a post-close measurement method

Context-specific definitions

In M&A

Revenue synergy means the additional sales enabled by combining two companies.

In strategic planning

It may refer more broadly to the uplift from partnerships, alliances, platform combinations, or internal business-unit integration.

In valuation

It means only the risk-adjusted, incremental, monetizable, and cash-convertible benefit.

In accounting

Revenue synergy is generally not recorded as a separate asset at acquisition unless it is tied to an identifiable intangible asset that meets recognition criteria. Expected synergies are usually reflected indirectly in goodwill, not as a stand-alone line item.

4. Etymology / Origin / Historical Background

The word synergy comes from the Greek root meaning working together. In business, it came to describe situations where combined activities produce more value than separate efforts.

Historical development

• 1960s conglomerate era: Synergy became a popular justification for acquisitions, often loosely used.
• 1980s deal wave: Buyers and financiers became more disciplined, separating operating gains from vague strategic promises.
• 1990s to 2000s: Analysts increasingly distinguished cost synergies from revenue synergies, with the latter viewed as harder to realize.
• Modern M&A practice: Revenue synergy remains important, but investors generally treat it more skeptically than cost savings because it depends heavily on execution, customer behavior, and market conditions.

How usage has changed

Earlier, “synergy” was sometimes used as a broad and optimistic buzzword. Today, sophisticated deal teams usually break it into:

• cost synergy
• revenue synergy
• financial synergy
• tax synergies
• strategic or capability synergies

Revenue synergy has become a specific analytical category, especially in merger modeling and integration planning.

Important milestone in practice

A major practical milestone was the growing use of:

• detailed synergy tracking offices
• integration scorecards
• probability-weighted valuation models
• stricter investor scrutiny after disappointing post-merger outcomes

In other words, the market moved from storytelling to evidence-based synergy modeling.

5. Conceptual Breakdown

Revenue synergy is best understood as a layered concept rather than a single number.

5.1 Source of revenue uplift

Meaning: The root cause of the extra revenue.

Common sources:

• cross-selling
• upselling
• bundling
• geographic expansion
• channel access
• stronger brand credibility
• better customer retention
• improved pricing or mix
• faster product launches

Role: This tells you why the extra revenue should exist.

Interaction with other components: The source determines adoption speed, required investment, and risk level.

Practical importance: If you cannot clearly identify the source, the synergy claim is weak.

5.2 Customer and market overlap

Meaning: The degree to which the businesses’ customers, products, or channels fit together.

Role: This determines whether the combined company can realistically sell more.

Interaction: High fit can create strong synergy, but too much overlap can also create cannibalization.

Practical importance: Good synergy often comes from complementary overlap, not merely large size.

5.3 Revenue bridge

Meaning: The step-by-step path from idea to actual sales.

A revenue bridge may include:

1. number of eligible customers
2. expected adoption rate
3. average selling price
4. retention or churn impact
5. timing ramp
6. discounts or cannibalization adjustments

Role: Converts strategic claims into measurable assumptions.

Interaction: Works closely with margin, sales capacity, and implementation timing.

Practical importance: Without a revenue bridge, synergy is just a slogan.

5.4 Incremental cost to achieve

Meaning: The extra expense needed to generate the new revenue.

Examples:

• additional salespeople
• marketing campaigns
• onboarding teams
• technology integration
• compliance setup
• customer success resources

Role: Prevents analysts from treating all new revenue as pure value.

Interaction: Directly affects EBIT and free cash flow.

Practical importance: Revenue synergy is often overstated because companies ignore cost-to-achieve.

5.5 Timing and ramp-up

Meaning: How quickly the synergy appears.

Most revenue synergies are phased, not immediate.

Role: Timing affects discounting and therefore valuation.

Interaction: Delays reduce present value even if total revenue eventually arrives.

Practical importance: A synergy arriving in year 4 is worth much less than the same synergy arriving in year 1.

5.6 Probability and execution risk

Meaning: The chance that the synergy actually happens.

Key risk drivers:

• customer resistance
• salesforce disruption
• integration delays
• channel conflict
• regulatory limits
• cultural mismatch
• product incompatibility

Role: Prevents overconfidence.

Interaction: High uncertainty should reduce the value assigned to synergy.

Practical importance: Professional models often probability-weight revenue synergies more heavily than cost synergies.

5.7 Conversion from revenue to value

Meaning: Turning extra sales into actual enterprise value.

Revenue alone is not value. Value comes from:

• contribution margin
• after-tax operating profit
• free cash flow conversion
• sustainability
• discount rate

Role: Connects commercial logic to finance.

Interaction: Depends on cost structure, capital intensity, and working capital needs.

Practical importance: The best discipline in valuation is to ask: How much cash does this revenue actually create?

6. Related Terms and Distinctions

Related Term	Relationship to Main Term	Key Difference	Common Confusion
Cost Synergy	Parallel form of merger benefit	Cost synergy reduces expenses; revenue synergy increases sales	Many people assume both are equally easy to realize; they are not
Operating Synergy	Broader umbrella	Operating synergy may include both cost and revenue effects	Revenue synergy is only one part of operating synergy
Financial Synergy	Separate category	Comes from financing, tax, capital structure, or funding advantages	Often wrongly mixed with selling-related benefits
Economies of Scale	Can support synergy	Scale lowers unit costs; revenue synergy lifts sales or pricing	Bigger size does not automatically create more revenue
Economies of Scope	Closely related	Scope means combined offerings can be sold together	Often the economic basis behind cross-selling synergy
Goodwill	Accounting outcome	Goodwill may include expected synergies, but synergy itself is not a booked revenue asset	People wrongly think synergy appears as a stand-alone asset
Organic Growth	Stand-alone company growth	Organic growth happens without the combination	Organic growth should not be counted as synergy
Purchase Premium	Deal pricing concept	Premium is what buyer pays above unaffected value	Buyers often justify premium using synergy forecasts
EPS Accretion	Market/finance metric	Accretion measures effect on earnings per share	A deal can be EPS accretive even with weak revenue synergy, and vice versa
Dis-synergy	Negative counterpart	Combined firm performs worse than separate firms	Ignoring dis-synergy is a common modeling error

Most commonly confused terms

Revenue synergy vs cost synergy

• Revenue synergy: more sales, better mix, or stronger pricing
• Cost synergy: lower expenses from overlap elimination or scale

Revenue synergy is usually harder to achieve because it depends on customer behavior, not just internal restructuring.

Revenue synergy vs organic growth

Organic growth is what the business could likely achieve without the deal. Revenue synergy is only the extra amount created by the combination.

Revenue synergy vs goodwill

Goodwill may reflect the value paid for expected synergies, but accounting generally does not let a company record “revenue synergy” as a separate acquired asset.

7. Where It Is Used

Finance and M&A

This is the primary setting. Revenue synergy appears in:

• acquisition screening
• valuation models
• purchase price negotiations
• board approvals
• fairness assessments
• post-deal value-creation planning

Accounting

Accounting does not usually measure revenue synergy as a line item in the income statement or acquisition-date balance sheet. However, expected synergies influence:

• goodwill recognized in business combinations
• future impairment analysis
• management commentary around acquisition rationale

Stock market and investing

Investors and analysts use revenue synergy to judge:

• whether a deal premium is reasonable
• whether management is too optimistic
• whether future growth targets are credible
• whether merger integration risk is priced into the stock

Business operations

Commercial teams use the concept in:

• sales integration plans
• channel strategy
• key account mapping
• pricing and bundling programs
• customer retention strategy

Banking and lending

Lenders may review synergy assumptions when underwriting acquisition financing. They are often cautious because:

• revenue synergies are uncertain
• covenant definitions may limit add-backs
• cash realization can take time

Valuation and research

Revenue synergy appears in:

• DCF models
• synergy bridge models
• scenario analysis
• sensitivity analysis
• deal comps commentary
• merger outcome research

Reporting and disclosures

Public companies may discuss expected synergies in:

• deal announcements
• investor presentations
• earnings calls
• merger-related filings
• annual reports

Any public disclosure should be supportable and carefully framed.

8. Use Cases

8.1 Cross-selling after an acquisition

• Who is using it: Corporate development team and sales leadership
• Objective: Sell the acquirer’s products to the target’s customer base and vice versa
• How the term is applied: The company estimates eligible customers, expected conversion rates, pricing, and timing
• Expected outcome: Higher revenue per customer and stronger account penetration
• Risks / limitations: Customer fatigue, poor CRM data, salesforce confusion, long sales cycles

8.2 Geographic expansion through buying distribution

• Who is using it: Manufacturer acquiring a regional distributor
• Objective: Enter new markets faster than building a network from scratch
• How the term is applied: Analysts model incremental volumes, channel productivity, and local pricing
• Expected outcome: Faster market entry and higher sales reach
• Risks / limitations: Weak distributor loyalty, local regulation, brand mismatch, onboarding delays

8.3 Bundling complementary products

• Who is using it: Technology or telecom company
• Objective: Increase average revenue per user by packaging products together
• How the term is applied: Management forecasts bundle uptake, churn reduction, and pricing uplift
• Expected outcome: Better retention and larger customer lifetime value
• Risks / limitations: Discounting may offset gains, product integration may lag, support complexity may rise

8.4 Private equity buy-and-build strategy

• Who is using it: Private equity sponsor
• Objective: Create a larger platform by combining smaller businesses
• How the term is applied: The sponsor estimates cross-referrals, broader account coverage, and shared sales processes
• Expected outcome: Faster topline growth and better exit valuation
• Risks / limitations: Fragmented systems, uneven management quality, poor data, overestimated adoption

8.5 Bank-insurance or financial product cross-sell

• Who is using it: Bank or financial group
• Objective: Sell insurance, wealth, payments, or lending products to an existing customer base
• How the term is applied: Models estimate eligible customers, product suitability, compliance constraints, and sales conversion
• Expected outcome: Higher customer wallet share
• Risks / limitations: Conduct rules, suitability requirements, data-sharing restrictions, reputational risk

8.6 Healthcare platform acquisition

• Who is using it: Hospital chain or healthcare services platform
• Objective: Increase patient referrals and deepen service offerings
• How the term is applied: Management estimates referral capture, payer mix effects, and service-line expansion
• Expected outcome: Better utilization and broader patient engagement
• Risks / limitations: Clinical integration challenges, referral leakage, reimbursement uncertainty

8.7 Consumer brand acquisition

• Who is using it: Large consumer goods company
• Objective: Use a wider retail footprint to scale an acquired brand
• How the term is applied: Teams model shelf expansion, promotion support, and channel placement gains
• Expected outcome: Faster sales growth for the acquired brand
• Risks / limitations: Cannibalization of existing brands, retailer pushback, promotion spending inflation

9. Real-World Scenarios

9.A Beginner scenario

• Background: A bakery and a coffee shop on the same street merge.
• Problem: Each business has loyal customers, but average customer spending is limited.
• Application of the term: The owner expects customers who came only for coffee to start buying pastries, and bakery customers to add beverages.
• Decision taken: The owner introduces combo offers and a shared loyalty program.
• Result: Average order value increases, but not every customer adopts the bundle.
• Lesson learned: Revenue synergy is not “all customers buy everything.” It is a realistic increase in sell-through from combining offers.

9.B Business scenario

• Background: A mid-sized industrial equipment maker acquires a spare-parts distributor.
• Problem: The equipment company struggles to monetize the installed base after initial sales.
• Application of the term: The combined firm estimates more recurring parts revenue from direct access to end customers.
• Decision taken: It integrates CRM systems, creates account-based selling teams, and launches bundled service contracts.
• Result: Parts revenue rises and customer retention improves, but implementation takes 18 months.
• Lesson learned: Revenue synergies often require process redesign and patient execution.

9.C Investor/market scenario

• Background: A listed software company announces a large acquisition and claims meaningful revenue synergies.
• Problem: Investors worry that management is overpaying.
• Application of the term: Analysts test whether the synergy estimate is supported by customer overlap, pricing logic, and sales capacity.
• Decision taken: Investors discount the synergy case heavily in their valuation model.
• Result: The stock initially falls because the market believes the purchase premium relies too much on uncertain revenue gains.
• Lesson learned: Markets usually grant less credit to revenue synergy than management teams do.

9.D Policy/government/regulatory scenario

• Background: Two large consumer businesses seek approval for a merger and argue that bundling and broader distribution will create efficiencies.
• Problem: Regulators must determine whether claimed benefits are real and whether the merger harms competition.
• Application of the term: The companies present estimated efficiencies, but some claimed “synergies” are linked to stronger pricing power from reduced rivalry.
• Decision taken: Regulators scrutinize which benefits are verifiable and merger-specific; pricing gains from weaker competition are not treated as a policy positive.
• Result: The parties may need remedies, revised assumptions, or narrower claims.
• Lesson learned: From a regulatory perspective, not every commercial upside is an acceptable efficiency argument.

9.E Advanced professional scenario

• Background: A corporate finance team is building an acquisition DCF for a board decision.
• Problem: Management believes the merger creates $80 million of “revenue synergy,” but the valuation team needs a defendable number.
• Application of the term: The team builds a revenue bridge, applies contribution margins, subtracts incremental selling costs, includes working capital needs, and probability-weights the scenarios.
• Decision taken: The board approves the deal only after reducing the maximum bid to reflect risk-adjusted synergy value rather than headline revenue.
• Result: The buyer avoids overpaying and sets measurable post-close targets.
• Lesson learned: Expert practice values revenue synergy through disciplined cash-flow analysis, not optimistic sales narratives.

10. Worked Examples

10.1 Simple conceptual example

Company A sells accounting software. Company B sells payroll software.

Separately:

• Company A serves finance teams.
• Company B serves HR teams.

Together, they can market an integrated solution to the same small business customers.

Revenue synergy: Some customers may now buy both products from one provider instead of buying only one.

Key point: The synergy is not the total combined revenue. It is the additional revenue created because the businesses are now together.

10.2 Practical business example

A large retail chain acquires a niche organic food brand.

Before the acquisition:

• The brand had strong demand but limited shelf presence.
• The retailer had shelf space and customer traffic but lacked a premium organic offering.

After the acquisition:

• The retailer places the brand in more stores.
• It promotes the brand through its loyalty app.
• It introduces premium bundle promotions.

Revenue synergy sources:

• wider distribution
• stronger promotion
• higher basket size
• brand access to a broader customer base

Important caution: If the new brand steals sales from the retailer’s existing private-label products, some of the “gain” is cannibalization, not true synergy.

10.3 Numerical example

A software acquirer buys an HR analytics company.

Step 1: Identify customer pools

• Acquirer customers: 6,000
• Target customers: 4,000
• Overlap: 1,000

So:

• Acquirer-only customers = 5,000
• Target-only customers = 3,000

Step 2: Estimate cross-sell revenue

• Sell target product to 12% of acquirer-only customers at $3,000 annual revenue
  = 5,000 × 12% × 3,000
  = 600 × 3,000
  = $1,800,000

• Sell acquirer product to 10% of target-only customers at $5,000 annual revenue
  = 3,000 × 10% × 5,000
  = 300 × 5,000
  = $1,500,000

• Bundle uplift for overlapping customers: 1,000 customers pay $400 more
  = 1,000 × 400
  = $400,000

Step 3: Compute gross revenue synergy

Gross revenue synergy
= 1,800,000 + 1,500,000 + 400,000
= $3,700,000

Step 4: Adjust for cannibalization and discounts

Suppose promotional discounts and cannibalization reduce net gain by $200,000.

Net revenue synergy
= 3,700,000 – 200,000
= $3,500,000

Step 5: Convert revenue to EBIT synergy

Assume contribution margin = 65%
Contribution profit
= 3,500,000 × 65%
= $2,275,000

Less incremental sales/support cost = $900,000

EBIT synergy
= 2,275,000 – 900,000
= $1,375,000

Step 6: Convert EBIT to after-tax operating benefit

Assume tax rate = 25%

After-tax operating benefit
= 1,375,000 × (1 – 25%)
= 1,375,000 × 75%
= $1,031,250

Step 7: Convert to free cash flow

Assume:

• incremental working capital = $150,000
• incremental capex = $100,000
• one-time integration spend = $200,000

Free cash flow synergy
= 1,031,250 – 150,000 – 100,000 – 200,000
= $581,250

Conclusion: The headline synergy started at $3.7 million of revenue, but the first-year free cash flow value is only about $0.58 million. That is why disciplined valuation matters.

10.4 Advanced example

A buyer expects phased revenue synergies over three years.

Assumptions

• Year 1 revenue synergy = $8.0 million
• Year 2 revenue synergy = $15.0 million
• Year 3 revenue synergy = $20.0 million
• Contribution margin = 40%
• Incremental fixed selling cost = $1.0 million in Year 1, $1.5 million from Year 2 onward
• Tax rate = 25%
• Incremental working capital investment = 8% of increase in synergy revenue
• Incremental capex = 3% of synergy revenue
• One-time integration cost in Year 1 = $0.8 million
• Discount rate = 11%
• Terminal growth after Year 3 = 2%
• Probability of full synergy case = 60%

Step 1: EBIT synergy

Year 1
EBIT = 8.0 × 40% – 1.0 = 3.2 – 1.0 = $2.2 million

Year 2
EBIT = 15.0 × 40% – 1.5 = 6.0 – 1.5 = $4.5 million

Year 3
EBIT = 20.0 × 40% – 1.5 = 8.0 – 1.5 = $6.5 million

Step 2: After-tax operating benefit

• Year 1 = 2.2 × 75% = $1.65 million
• Year 2 = 4.5 × 75% = $3.375 million
• Year 3 = 6.5 × 75% = $4.875 million

Step 3: Working capital and capex

Working capital is based on the increase in revenue synergy.

• Year 1 increase = 8.0 → NWC = 8% × 8.0 = $0.64 million
• Year 2 increase = 15.0 – 8.0 = 7.0 → NWC = 8% × 7.0 = $0.56 million
• Year 3 increase = 20.0 – 15.0 = 5.0 → NWC = 8% × 5.0 = $0.40 million

Capex:

• Year 1 = 3% × 8.0 = $0.24 million
• Year 2 = 3% × 15.0 = $0.45 million
• Year 3 = 3% × 20.0 = $0.60 million

Step 4: Free cash flow synergy

Year 1
FCF = 1.65 – 0.64 – 0.24 – 0.80 = -$0.03 million

Year 2
FCF = 3.375 – 0.56 – 0.45 = $2.365 million

Year 3
FCF = 4.875 – 0.40 – 0.60 = $3.875 million

Step 5: Terminal value

Year 4 revenue synergy = 20.0 × 1.02 = $20.4 million

Year 4 EBIT = 20.4 × 40% – 1.5 = 8.16 – 1.5 = $6.66 million

After-tax = 6.66 × 75% = $4.995 million

Year 4 NWC on increase = 8% × (20.4 – 20.0) = 8% × 0.4 = $0.032 million

Year 4 capex = 3% × 20.4 = $0.612 million

Year 4 FCF = 4.995 – 0.032 – 0.612 = $4.351 million

Terminal value at end of Year 3:

Terminal value = 4.351 / (11% – 2%)
= 4.351 / 9%
= $48.344 million

Step 6: Present value

• PV Year 1 = -0.03 / 1.11 = -$0.027 million
• PV Year 2 = 2.365 / 1.11² = 2.365 / 1.2321 = $1.920 million
• PV Year 3 = 3.875 / 1.11³ = 3.875 / 1.3676 = $2.834 million
• PV Terminal = 48.344 / 1.11³ = 48.344 / 1.3676 = $35.346 million

Total NPV of full synergy case
= -0.027 + 1.920 + 2.834 + 35.346
= $40.073 million

Probability-weighted value
= 40.073 × 60%
= $24.044 million

Professional takeaway: A headline three-year revenue synergy story can translate into a much smaller risk-adjusted value number.

11. Formula / Model / Methodology

There is no single universal “revenue synergy formula,” but there is a standard modeling sequence.

11.1 Core formulas

Formula Name	Formula	What It Measures
Revenue Synergy Gap	Revenue Synergy_t = Combined Revenue_t – Stand-alone Revenue_t	Extra revenue caused by the combination
Net Revenue Synergy	Net Revenue Synergy_t = Gross Synergy_t – Cannibalization_t – Pricing Concessions_t	Revenue uplift after leakages
EBIT Synergy	EBIT Synergy_t = (Net Revenue Synergy_t × Contribution Margin_t) – Incremental Operating Cost_t	Operating profit generated by synergy
After-Tax Benefit	After-Tax Benefit_t = EBIT Synergy_t × (1 – Tax Rate)	Post-tax operating gain
Free Cash Flow Synergy	FCF Synergy_t = After-Tax Benefit_t – Delta NWC_t – Incremental Capex_t – One-Time Cost_t	Cash flow created by synergy
Present Value of Synergy	PV = Sum of FCF Synergy_t / (1 + r)^t	Value today of future synergy cash flows
Probability-Weighted Synergy Value	Expected Value = Sum of (Probability_i × NPV_i)	Risk-adjusted expected value

11.2 Meaning of variables

• Combined Revenue_t: Revenue expected from the merged business in period t
• Stand-alone Revenue_t: Revenue the two companies would have generated separately in period t, including realistic organic growth
• Contribution Margin_t: Incremental gross profit rate after variable or directly attributable costs
• Incremental Operating Cost_t: Added sales, marketing, service, compliance, and support costs needed to deliver the synergy
• Tax Rate: Effective tax rate applied to operating profit
• Delta NWC_t: Additional working capital tied up because of more sales
• Incremental Capex_t: Additional capital spending needed to support the new revenue
• One-Time Cost_t: Integration, onboarding, system, training, or migration costs
• r: Discount rate reflecting risk and time value
• Probability_i: Chance of a particular scenario occurring
• NPV_i: Present value of synergy under that scenario

11.3 Interpretation

• A high revenue synergy number is not enough.
• The quality of synergy depends on:
• margin conversion
• speed of realization
• sustainability
• execution risk
• required investment

11.4 Sample calculation

Assume:

• Net revenue synergy = $20 million
• Contribution margin = 35%
• Incremental operating cost = $2 million
• Tax rate =