Is synergy a barrier to business exit?

This study investigates a prevalent assumption or argument that synergy between businesses in a multi-business firm acts as a barrier for exiting that firm’s business. Using a formal model, the study situates synergy in the context where the firm can exit its business through resource redeployment or through divestiture. The model identifies six conditions, in terms of the type of synergy and of the determinants of resource redeployment and divestiture, with which synergy can actually increase, rather than decrease, the odds of business exit. Knowledge of these conditions may be useful in future empirical research on business exit and can stimulate better exit decisions by executives. The results are also instrumental for more balanced perspectives of synergy than the view that has developed since the field’s formation.