How are revenue synergies used in merger models?

• A. Add to Revenue with a margin
• B. Reduce COGS
• C. Apply directly to Net Income
• D. Ignore

Answer: (A)

Revenue synergies are the extra top-line growth the merged company expects to generate beyond what each business would achieve on its own, from things like cross-selling, expanded product lines, or broader geographic reach. In a merger model you reflect this by adding incremental revenue to the base revenue and then applying an incremental margin to that revenue to estimate its profitability. This approach shows how much the additional revenue contributes to operating income, after accounting for the costs to produce and sell it. It’s not about simply increasing net income or about reducing COGS directly; those are separate effects (cost synergies) that would be modeled differently. Ignoring revenue synergies would understate the deal’s value.