The word synergy comes from the Greek roots syn + energy and means similar or like energies. In that respect, M&A synergy is about finding similar or overlapping operations, facilities, units, and jobs. By eliminating redundancies, organizations reduce the cost of operating the combined parts. Current pharma mergers are moving ahead to achieve their cost-reduction targets. But reducing cost by creating redundancy and then removing it hardly creates long-term value.

The second aspect of M&A synergy is that of parts working in cooperation, reflecting a harmonious combination of operations: jobs, facilities, technology, product lines, and sales forces. Logistically, that cooperation can be very complex.

Synergy's third dimension is to create something greater than the sum of the parts. In that respect, merger pronouncements often promise growth rates and economic potential that are greater within a merged company than the separate assets of its predecessors.

Citigroup, which grew from the merger of Travelers and Citicorp, is a useful example. Citigroup's leadership first worked to reduce costs and redundancies. Next they harmonized operations. The two organizations complemented each other in terms of noncompeting lines of business and different global geographic strengths. Through combination, each company significantly extended its global reach and product lines.

Now, nearly three years later, Citigroup is into the third phase of synergy, accelerating growth through cross selling, product extensions, and expanded customer relationships. Citigroup has more products to sell to more customers in more geographic areas- a good recipe for growth.

But Citigroup's integration journey proved perilous for some. Early co-leadership structures that were crafted to make the merger happen subsequently proved clumsy and ineffective. Citigroup lost talented executives along the way. Now under a single CEO, Citigroup is on track to becoming the most profitable company in the world, surpassing even mighty GE.

In the pharmaceutical industry, the synergy needed to create accelerated growth is still a proving ground. Based on benchmarking research, the immediate victors are likely to be the companies that effectively join commercial operations. Experienced integration managers in other industries observe that M&As work best as growth drivers when the marriage acquires new products, increases sales, and consolidates operations. (See "Reasons for Merging," page 58.)

Battle-wise managers contend that risk sharing and vertical integration are poor reasons for combining businesses. Currently, very few pharma mergers cite R&D risk sharing as reason for undertaking a merger-although only a few years ago it was a common reason. Pharma CEOs now recognize that R&D productivity gains materialized much more slowly than the once-promised launch of up to three new blockbuster drugs each year.

Consequently, commercial operations are now fertile ground for M&A value creation. The opportunity reaches across several sales and marketing fronts, including

• combining product portfolios to create franchises and strong therapeutic area brands
• integrating large sales forces to gain greater access to hard-to-see doctors
• providing more products to sales reps who can then promote them more effectively to their customers
• winning a greater share of voice through combined sales and marketing resources that bring greater access to medical decision makers
• increasing sales force productivity through excellence in team-based selling within overlapping sales territories.

Sales and marketing productivity goals were challenging to pharmaceutical companies even before they considered consolidation. Meeting those goals is no easier after a merger. Yet pharma investors, customers, executives, and employees can focus on that area to track the progress of their favorite marriages.

Time will tell whether the new companies can muster the focus, skill, and resources to create long-term value and accelerated growth. Those that succeed will be powerful giants. Those that stumble will find that the bigger they are, the harder they fall. The difference lies in their ability to integrate in a way that makes everyone a winner.