Business Consolidation

AAA

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.

RELATED TERMS
  1. Debt Consolidation

    The act of combining several loans or liabilities into one loan. ...
  2. Proportional Consolidation

    In accounting for joint ventures, a method of including items ...
  3. Vertical Merger

    A merger between two companies producing different goods or services ...
  4. Merger

    The combining of two or more companies, generally by offering ...
  5. Consolidation Phase

    A stage in the life of a company or an industry in which components ...
  6. Conglomerate Merger

    A merger between firms that are involved in totally unrelated ...
Related Articles
  1. Fundamental Analysis

    Mergers And Acquisitions: Understanding Takeovers

    In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game.
  2. Budgeting

    Debt Consolidation Made Easy

    These five steps can help get you out of debt faster and easier than you'd ever imagined.
  3. Fundamental Analysis

    Key Players In Mergers And Acquisitions

    Strategic acquisition is becoming a part of doing business. Discover the different types of investor groups involved.
  4. Forex Education

    Forex Consolidation Trading - Trade The Calm, Profit From The Storm

    Capture quick profits with the powerful directional biases of these two patterns.
  5. Forex Education

    Mergers & Acquisitions: An Avenue For Profitable Trades

    When major corporate transactions have a big impact on the currency markets, you can benefit.
  6. Fundamental Analysis

    Accretion / Dilution Analysis: A Merger Mystery

    This analysis tool is an effective way to value mergers and acquisitions. The deal's on the table, but should you sign the papers?
  7. Options & Futures

    The Long Straddle And Price Consolidation

    With options, the direction of a stock's next major move becomes less important than its magnitude.
  8. Active Trading Fundamentals

    Trade Takeover Stocks With Merger Arbitrage

    This high-risk strategy attempts to profit from price discrepancies that arise during acquisitions.
  9. Investing

    Mergers Put Money In Shareholders' Pockets

    Learn the five ways mergers and acquisitions can increase a company's value.
  10. Insurance

    The Wonderful World Of Mergers

    While acquisitions can be hostile, these varied mergers are always friendly.

You May Also Like

Hot Definitions
  1. Marketable Security

    Any equity or debt instrument that it readily salable and can be converted into cash, or exchanged with ease. Stocks, bonds, ...
  2. Risk-Free Rate Of Return

    The theoretical rate of return of an investment with zero risk. The risk-free rate represents the interest an investor would ...
  3. Scarcity

    The basic economic problem that arises because people have unlimited wants but resources are limited. Because of scarcity, ...
  4. Trust Fund

    A trust fund is a fund comprised of a variety of assets intended to provide benefits to an individual or organization. The ...
  5. Christmas Tree

    An options trading strategy that is generally achieved by purchasing one call option and selling two other call options at ...
  6. Christmas Club

    A short-term savings account that usually pays out the full account balance to its account holders once each year, right ...
Trading Center