What is the 'Consolidation Phase'

The consolidation state is a phase in the industry or company life cycle where segments in the company or competitors in the industry start to merge. Companies often consolidate to gain a larger portion of overall market share and to take advantage of synergies. Each of these items can increase their top line revenue and company valuation in order to juice their fundamentals and make their stock more attractive to investors.

Consolidations and mergers are usually sought after as a form of inorganic growth when the organic growth phase of industry formation has passed. Companies often merge or consolidate segments in order to cut down on costs, achieve more efficient operations or discontinue product lines that are not performing as well as others. This is done when a company has matured and is not longer in its growth phase. It often has the effect of making a company more attractive to investors.

BREAKING DOWN 'Consolidation Phase'

Consolidations and mergers occur late in the industry life cycle. The phases of the industry life cycle are introduction, growth, maturity and decline. During introduction, a company or many companies may be working hard to introduce a new product or service into the mainstream. During the growth phase, the new product or service has caught on and companies involved in creating or delivering the product or service are experiencing large amounts of organic growth as demand for their product increases. This is where lots of new companies enter the industry. In the mature phase, there is usually a shake-out of successful from unsuccessful companies. In late maturity, companies may begin to consolidate as organic growth slows and they look for ways to increase their market share and juice their growth.

Let's say the video game industry is starting to mature, and its companies start to acquire other companies and join together to form larger entities; this would be an example of a consolidation phase for the industry.

RELATED TERMS
  1. Mature Industry

    A mature industry is a sector that has reached a phase where ...
  2. Business Consolidation

    Business consolidation is the combination of several business ...
  3. Cyclical Industry

    A cyclical industry is sensitive to the business cycle, meaning ...
  4. Phase 2

    The second phase of clinical trials or studies for an experimental ...
  5. Phase 1

    Phase 1 clinical studies or clinical trials are focused on the ...
  6. Market Cycles

    Market cycles include four phases of market growth and decline, ...
Related Articles
  1. Trading

    Market Cycles: The Key to Maximum Returns

    You need to understand the various phases of the market cycle to avoid bubbles and make the best investments.
  2. Personal Finance

    Consolidating Debt: What If You Have Bad Credit?

    Getting a debt consolidation loan is more difficult when you have bad credit. But it could still help put you on the road to improving your credit score.
  3. Investing

    Understanding Market and Full Risk Cycles

    Investor need to understand the four stages the markets tend to experience.
  4. Trading

    Technical Buy Points on High-Flying Stocks

    A look at where to consider buying these strong stocks that recently started pulling back.
  5. Insights

    Top 4 Companies that Consolidate Private Student Loans (CFG)

    Consolidating your student loans can save you money.
  6. Investing

    The 4 Stages of the Investor Emotion Cycle

    Investors have an emotional counterpart to each of the four stages of the market cycle.
  7. Trading

    4 Bullish Flag Patterns You Should Trade Now

    Here are four stocks with flag patterns, highlighting the various ways to trade this chart pattern.
  8. Personal Finance

    Time To Consolidate Your Student Loans?

    Use these strategies to decide whether consolidating your student loans makes sense for you – and what to do next if it does.
RELATED FAQS
  1. What happens during the consolidation phase of an investor's life cycle?

    Unlike the accumulation phase – where emphasis is placed on growing wealth – the consolidation phase is a balance between ... Read Answer >>
  2. What are the three phases of a completed initial public offering (IPO) transformation ...

    While some large and successful companies are still privately-owned, many companies aspire toward becoming a publicly-owned ... Read Answer >>
  3. Can forex currency pairs exhibit consolidation patterns?

    Learn how forex currency pairs exhibit recognizable consolidation patterns. These patterns offer traders the opportunity ... Read Answer >>
  4. When during the economic cycle should I invest in the banking sector?

    Learn how your individual investing style determines what phase of the economic cycle is the best time to invest in the banking ... Read Answer >>
  5. What's the difference between debt consolidation and debt settlement?

    Learn the differences between negotiating a debt settlement with your existing creditors and applying for a new consolidation ... Read Answer >>
Hot Definitions
  1. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  2. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  3. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  4. Return on Investment (ROI)

    Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...
  5. Interest Coverage Ratio

    The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a company can pay interest ...
  6. Cash Conversion Cycle - CCC

    Cash conversion cycle (CCC) is a metric that expresses the length of time, in days, that it takes for a company to convert ...
Trading Center