What financial term describes the benefits that arise when two companies combine?

The term that describes the benefits that arise when two companies combine is synergy. Synergy occurs when the combined performance and efficiencies of two companies result in a greater value than the sum of their separate individual parts. This can manifest in various ways, such as cost savings through economies of scale, enhanced revenue generation from cross-selling opportunities, and improved operational efficiencies.

For example, if two companies merge, they may be able to reduce redundant functions, like overlapping marketing teams or administrative costs, which leads to lower overall expenses. Additionally, by pooling resources, knowledge, and technologies, the combined entity can often drive innovation and create new value propositions that neither company could achieve alone. This is why synergy is a key driver behind many mergers and acquisitions; executives and shareholders look forward to maximizing those potential advantages in creating a more competitive and financially stronger organization.