Revenue synergies
M&A / Merger ModelAdditional sales expected from combining two businesses, typically cross selling, which banks discount heavily.
Revenue synergies are the sales the combined company expects to make that neither could alone: selling the acquirer's product to the target's customers, bundling, entering a market through an existing channel.
They are treated far more sceptically than cost synergies because they depend on customers behaving as hoped. Closing a duplicate office is a decision; persuading someone else's customer to buy your product is a hope, and it competes against the disruption integration itself creates.
Many banks value them at a heavy discount or exclude them from the base case entirely, presenting them as upside rather than as justification for the premium. A deal that only works with revenue synergies is usually a deal that does not work.
They are also slower. Cost savings typically land within one to two years; cross selling benefits, where they arrive at all, take longer and are much harder to attribute afterwards.
Worked example
An acquirer claims 40 a year of cross selling revenue at a 30% margin, so 12 of EBITDA.
Applied at the same 8% cost of capital and 25% tax as cost synergies, that is worth 112. Many banks would discount it by half or exclude it from the base case entirely.
If the deal only works with that 112 included, it is a deal that does not work. Present revenue synergies as upside, not as justification for the premium.