Mergers & Acquisitions: How to Evaluate Synergies | Quick ₹eads

by Karnivesh | 16 January 2026

The Truth Behind Every Deal

A company announces a ₹10,000 Crore acquisition. Wall Street cheers. The stock price jumps 10%. Then, three years later, nothing has happened. The promised synergies never materialized. The stock crashes. Shareholders lose everything.

This happens constantly. Not because companies are dumb. Because synergies are hard to achieve. And most people don't understand what they're actually buying.​

Synergies are the core reason companies do M&A. Without synergies, there's no reason to pay a premium. But synergies are also where deals die.​

Understanding how to evaluate synergies separates investors who profit from M&A from those who lose money.​

What Are Synergies? The Three Types

Synergy = Extra value created by combining two companies that wouldn't exist if they stayed separate.​

Company A is worth ₹100 Crore. Company B is worth ₹50 Crore. Combined, they're worth ₹200 Crore. The extra ₹50 Crore is synergy.​

There are three types:​

Type 1: Cost Synergies​

Eliminate redundancy. Close duplicate facilities. Fire overlapping staff. Both companies had separate finance, HR, and marketing departments. After merger, you need only one.​

Exxon-Mobil merged in 1998. They eliminated 16,000 jobs, closed 2,400 redundant gas stations, and consolidated refineries. Cost synergies: $5 billion annually.​

Cost synergies are the easiest to achieve because you control them directly. You decide who to fire, which offices to close, which systems to consolidate.​

Type 2: Revenue Synergies​

Cross-sell. Combine product lines. Expand to new customers. Company A sells to banks. Company B sells to insurance companies. Combined, they sell to both.​

Tata Steel acquired Corus (European steelmaker). Tata could now sell Corus steel in India. Corus could use Tata's cost advantage to win new customers. Revenue potential: $300-400 million annually.​

But revenue synergies are speculative. You need customers to buy more, salespeople to execute better, new markets to accept you. Much harder to control.​

Type 3: Financial Synergies​

Optimize capital structure. Lower debt costs. Realize tax benefits. Combined company has stronger credit rating, lower borrowing costs.​

When Jio bought RCom's infrastructure (towers, spectrum, fiber), it got immediate financial synergies: lower tower rental costs, access to spectrum for free instead of buying it at auction, consolidated network reducing capital expenditure.​

M&A Synergies Explained: Cost vs Revenue vs Financial Why Cost Is Easy, Revenue Is Hard 

Reliance Jio's Synergy Playbook: How to Actually Capture Value

Reliance Jio is the master of capturing M&A synergies in telecom.

Jio's strategy: Buy infrastructure assets, immediately eliminate duplicate costs, realize savings quickly.​

The RCom Deal (2018):​

Jio paid approximately ₹24,000 Crore for RCom's assets: spectrum, towers, and fiber optic cable.​

The synergies:​

• Tower rental savings: Jio was already renting 42,000 RCom towers at ₹1,500-1,600 Crore annually. After acquisition, those costs dropped to zero. Jio owned them.​

• Spectrum consolidation: RCom had 850/1800 MHz spectrum. Jio integrated it into its network immediately.​

• Fiber network integration: RCom's fiber backbone merged with Jio's, eliminating duplication.​

Estimated synergies: ₹1,500+ Crore annually from tower costs alone.​

Pay-back period: 1-2 years. This is why the deal made sense.​

Tower Sharing Agreements (2025):​

Jio didn't stop at acquiring RCom. It signed tower sharing agreements with Bharti Infratel and Viom Networks.​

Why? More synergies:​

• Faster network rollout: Use someone else's towers instead of building your own.​

• Lower capital costs: Avoid ₹5,000+ Crore capex for new towers.​

• Reduced environmental footprint: One tower serves multiple operators instead of three operators building three towers.​

These deals are harder to quantify but deliver real savings.​

Tata Steel's Corus Acquisition: When Synergies Don't Materialize

Tata Steel paid $13.1 billion for Corus (a European steelmaker) in 2007. It promised massive synergies. It delivered disappointment.​

Expected Synergies:​

• Manufacturing synergies: Lower production costs by combining Tata's low-cost Indian operations with Corus's European scale

• Procurement synergies: Combine ₹100,000+ Crore purchasing power, negotiate better supplier prices

• Marketing synergies: Sell more steel by combining sales teams and customer bases

• Expected value: $350+ million annually in three years​

What Actually Happened:​

• Manufacturing: Tata's ₹710/ton cost efficiency didn't transfer to European operations (different wages, regulations, market dynamics)

• Procurement: Supplier relationships didn't consolidate as expected

• Marketing: European customers didn't buy more just because Tata owned Corus

• In 2008, global financial crisis hit. Demand for steel collapsed​

By 2012, Tata had written off billions in goodwill. The synergies never materialized in the promised timeframe.​

The Lesson: Revenue and operational synergies are harder to achieve than cost synergies. Geographic and cultural differences slow implementation.​

Why Cost Synergies Are Easy, Revenue Synergies Are Hard

Cost synergies: You decide to cut costs. You fire people, close offices, consolidate systems. This happens in months.​

Exxon-Mobil realized $5 billion in cost synergies fast because they controlled the decision. Close a redundant refinery → cost drops immediately.​

Revenue synergies: You hope customers buy more. But customers make their own decisions.​

Tata Steel acquired Corus hoping European customers would buy more steel. But European customers have established suppliers. They're not switching just because Tata owns Corus.​

Timeline difference:​

Cost synergies: 1-2 years to capture (85% realization rate)​Revenue synergies: 3-5+ years to capture (45% realization rate)​

This is why Wall Street undervalues cost synergies in deals. They're boring and certain. And why it overvalues revenue synergies. They're exciting but unlikely.​

How to Evaluate Synergies: The Investor's Checklist

Question #1: Are the Synergies Cost-Based or Revenue-Based?​

Cost synergies: Easier to achieve. More likely to succeed. Less speculative.​

Revenue synergies: Harder to achieve. 50% failure rate. Requires customer behavior change.​

If a deal is 80% cost synergies and 20% revenue, odds are high you achieve most of them.​

If it's 30% cost and 70% revenue, odds are you achieve maybe 40% of promised synergies.​

Question #2: What's the Timeline?​

Cost synergies taking 5+ years? Red flag. They should be 1-2 years.​

Revenue synergies promised in Year 1? Red flag. Realistic timeline is 3-4 years minimum.​

Companies that estimate aggressive timelines often miss them.​

Question #3: How Much of the Deal Price Is Justified by Synergies?​

Company A (₹100 Cr value) + Company B (₹50 Cr value) = ₹150 Cr combined.

If the buyer pays ₹200 Crore, they're betting on ₹50 Crore in synergies.​

If 80% of that ₹50 Crore is cost synergies, you're probably okay. If 80% is revenue, you're taking huge risk.​

Question #4: Is This Synergy Contingent on External Events?​

Jio's tower synergies: "We'll save on tower costs." This is within Jio's control.​

Tata Steel-Corus revenue synergies: "European customers will buy more." This depends on customers' behavior.​

Which is more likely to happen? Obviously the first.​

The Reality: Synergies Are Almost Always Overstated

Research shows that 65% of M&A deals destroy shareholder value because promised synergies never materialize.​

Why?​

Integration is harder than expected. Cultural differences slow execution. Markets change. Competitors respond. Unexpected costs emerge.​

Tata-Corus is the perfect example. Promised synergies never happened. Stock crashed. Shareholders lost billions.​

So when evaluating an M&A deal, assume synergies will be:

• Cost synergies: 70% of promised value realized

• Revenue synergies: 30% of promised value realized

If the deal still makes sense at those discount rates, it's probably a good deal.​

If the deal only works if 100% of revenue synergies materialize, avoid it.​

The Final Lesson

M&A synergies are where deals die. But they're also where value is created.​

Companies that execute on cost synergies (Exxon-Mobil, Jio with RCom) create shareholder value.​

Companies that over-promise on revenue synergies (Tata-Corus) destroy it.​

The investor's job is separating the two.​

Track announced synergies. Compare to actual results three years later. Which companies deliver? Which companies miss?​

The winners? They're the ones being conservative on synergy estimates and aggressive on cost cuts.​

The losers? Betting the farm on revenue synergies that never happen.