Business Consolidation

Definition of 'Business Consolidation'


The consolidation of several business units or several different companies into a larger organization. Business consolidation is used to improve operational efficiency by reducing redundant personnel and processes. It is most often associated with mergers and acquisitions. Business consolidation can result in long-term cost savings, but in the short-term can be expensive and complex.

Investopedia explains 'Business Consolidation'


Businesses seeking to combine operations have several options at their disposal. The most drastic option is to combine multiple companies or business units into a brand new company. This can be an expensive proposition if one of the merging companies is liquidated, and can carry additional costs associated with creating a new brand. Another option for business consolidation involves moving smaller operations into an existing company that is not intended on being dismantled.

Consolidated business can obtain cheaper financing if the consolidated entity is more stable, more profitable, or has more assets to use as collateral. It may also be able to use its larger size to extract better terms from suppliers because it will be able to buy more units.

Companies that combine operations must also deal with cultural differences between firms. For example, merging an older, established technology company with a small start-up company may cause personnel to clash. In this example, management in the older firm may feel more comfortable with operating under strict administrative hierarchies, while the start-up company may have preferred less administrative authority over operations.


Filed Under: ,

comments powered by Disqus
Hot Definitions
  1. Federal Reserve Note

    The most accurate term used to describe the paper currency (dollar bills) circulated in the United States. These Federal Reserve Notes are printed by the U.S. Treasury at the instruction of the Federal Reserve member banks, who also act as the clearinghouse for local banks that need to increase or reduce their supply of cash on hand.
  2. Benchmark Bond

    A bond that provides a standard against which the performance of other bonds can be measured. Government bonds are almost always used as benchmark bonds. Also referred to as "benchmark issue" or "bellwether issue".
  3. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.
  4. Oil Reserves

    An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.
  5. Joint Venture - JV

    A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it.
  6. Aggregate Risk

    The exposure of a bank, financial institution, or any type of major investor to foreign exchange contracts - both spot and forward - from a single counterparty or client. Aggregate risk in forex may also be defined as the total exposure of an entity to changes or fluctuations in currency rates.
Trading Center