What term describes the situation when the combination of two firms enhances their overall value compared to operating separately?

The situation where the combination of two firms enhances their overall value compared to operating separately is termed as synergies. This concept refers to the benefits that companies realize when they merge or collaborate, which can lead to increased efficiencies, cost savings, improved revenues, or enhanced market power.

When two firms come together, they can share resources, reduce redundant operations, and leverage their combined strengths to create greater value than what each could achieve independently. This could manifest in various forms, such as economies of scale, enhanced technological capabilities, or improved market access, thereby increasing the overall worth of the combined entity.

Other options like investment synergy, operating efficiency, and financial leverage do not encompass the comprehensive idea of combining two firms to create additional value in the same way. Investment synergy typically refers to the value derived from investing combined resources, while operating efficiency focuses narrowly on cost reduction and productivity improvements. Financial leverage pertains to the use of borrowed funds to amplify returns but does not inherently describe the value enhancement resulting from a merger or acquisition.