Synergy Effects Analysis in Merger and Acquisition Deals of Vertically Integrated Companies

One of incentives for implementing vertical merger and acquisition deals is the creation of synergy effect. Vertical M&A deals are of a significant interest and they represent incorporation of companies operating on adjacent stages of same manufacturing process. In this connection newly established vertically integrated companies possess a range of peculiarities and benefits. Present investigation is induced by an existing discrepancy: while in theoretical literature separation among operational and financial synergy effect exists with their components distinguished, empirical research mostly ignores the given classification. In connection with foregoing, the purpose of the research is the assessment of synergy effect formation and complex analysis of its dependency on components of operational synergy (economies of scale creation, market position reinforcement) and financial synergy (tax shield enlargement, investment possibilities realization, debt capacity increase). As a result of econometrical analysis of 61 Russian domestic vertical M&A deals it was established, that only half of sample is efficacious in terms of synergy effect formation. Significance is proved for such factors of synergy as economies of scale creation, tax shield enlargement and investment possibilities realization. Furthermore, sector that integrating companies operate in and macroeconomic environment conditions influence the synergy effect formation. Results of the investigation are applied for an analysis of M&A deal between public joint-stock company «GMK «Norilsky nikel» and joint-stock company «Norilskgazprom». Besides, results of present research can further be used for complex analysis of single synergy effect components alongside with total synergy effect and the influence of abovementioned components on synergy effect formation when implementing vertical M&A deals in Russian market.