Mergers & acquisitions: Value creation through the realization of synergies

Helene Jo Bjerre Østergård

Student thesis: Master thesis


Synergies are often used as the justification for pursuing an acquisition of another company. The desire to achieve the well-known 1 + 1 = 3 spurs companies to strive to achieve synergies through acquisitions. However, there is significant evidence that the average transaction does not create post merger value and therefore, you may wonder why companies continuously pursue acquisitions. Theoretically, when realizing synergies; an extensive integration process, management, planning, and financial evaluation are essential for the realization of synergies to succeed. These findings are in general consistent with those of experienced professionals who, additionally, emphasise communication, people, and the underlying assumptions of the acquisition as key elements of successful synergy realization. Empirical evidence show that the average M&A transaction creates value for the target company’s shareholders, destroy value for shareholders of the acquiring company, and break-even when evaluating the combined company after the merger. In Denmark, the evidence does not differ from the global results and based on acquisitions in 2004 and 2005, companies did not perform above average. To deviate from the empirical evidence a clinical study of Vestas Wind Systems A/S’ acquisition of NEG Micon A/S in 2004 showed that M&A is not an easy task. Cultural integration and an overall strategy for the combined company turned out to be the decisive factor for the development of Vestas after the merger. Also, Vestas struggled to overcome significant failures in the turbines and implementing the goal to overcome this into the vision and strategy turned out satisfactory. Overall, the project has come to three groupings of recommendations; • The strategic fit and underlying assumptions. Understanding the target company and preparing the process based on the underlying assumptions is essential. • Synergies. No matter which synergies are expected, the valuation and assessment are of great importance. • A strong common vision. A powerful common vision of the combined company creates coherence across the company and determines an overall future strategy. In this case management is key. Paying attention to these three areas; strategic fit and planning, synergy assessment and evaluation, and management, companies should be better suited to achieve success in the acquisition process.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2009
Number of pages86