Mergers and acquisitions can create synergies in two primary categories. Which two categories are commonly cited?

• A. Revenue synergy and cost synergy
• B. Financial synergy and operational synergy
• C. Tax synergy and regulatory synergy
• D. Market share synergy and innovation synergy

Answer: (A)

Two big ways mergers and acquisitions create value are through increasing sales and reducing costs. Revenue synergies come from the combined company being able to sell more than the two firms could separately—things like cross-selling to a larger customer base, entering new geographic markets, bundling products, or leveraging greater pricing power from scale. Cost synergies arise when the merged entity can cut expenses by eliminating duplicative functions, consolidating systems and facilities, squeezing better terms from suppliers due to higher volume, and streamlining operations.

These two categories are commonly cited because they directly translate into higher profitability—either by lifting the top line or reducing the cost base. While other effects like tax or financing considerations can influence a deal, revenue and cost synergies are the primary sources of value creation in most frameworks.