Mergers and Acquisitions deals that create value constitute at least one or a combination of financial and operational synergy. This paper investigates the effect of synergy on financial performance of merged institutions in the financial services sector in Kenya. The paper adopted a mixed research design, pre and post-merger secondary data was collected from 40 (forty) institutions in the Kenyan financial services industry that had concluded their merger processes by 31 December 2013. Financial synergy was proxied using the liquidity ratio while operating synergy was measured using growth in sales. Primary data was used to explain the results of the secondary data. Panel data analysis was used to determine the change in the study variables and trends over time between 2009 and 2013, event window (pre-merger and post-merger) analysis was used to test for any significant difference in performance means before and after merger as a result synergy, while regression analysis was used to determine the relationship between synergy and profitability. Results show that there is a positive relationship between performance, operating synergy and financial synergy, and that there was significant improvement in performance post-merger. From these findings, the study recommends that institutions should critically evaluate the overall business and operational compatibility of the merging institutions and focus on capturing long-term financial synergies as this has a positive effect on the performance.