ITPEC FE Subject A April 2026 Question 49
Company A (a software company) acquires Company B (a data analytics company). After the acquisition, the resulting company implements the following:
- •Cross-sells Company A’s software tools to company B’s customers to boost revenue.
- •Integrates Company B’s algorithms into Company A’s products to enhance functionality.
- •Cuts redundant office leases to save $3 million annually.
Which of the following is the phenomenon that creates greater value than the sum of what each company could have achieved independently?
Explanation
Synergy effect — the combined company creates more value than the two could separately.
Each action in the list is a kind of synergy:
- •Cross-selling A's tools to B's customers — revenue synergy
- •Building B's algorithms into A's products — capability synergy
- •Cutting redundant office leases — cost synergy
Answer (c)
Why not others:
- •(a) Horizontal integration — names the structure of a deal between firms at the same stage of an industry, not the phenomenon that produces the extra value
- •(d) Vertical integration — combining different stages of one supply chain, such as a maker buying its supplier; again a deal structure
- •(b) Market penetration — selling more existing products in existing markets, an Ansoff growth strategy that needs no acquisition
Key rule: "Greater than the sum of the parts" is the definition of synergy; integration terms describe how firms are combined, not the value the combination creates.
Business Strategy Management · AI-written, may contain errors
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