Consolidation Definition

Learn more about what consolidation is in business.

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consolidation definition

The definition of “consolidation” in business generally refers to combining different departments of a company into one larger unit or combining separate companies into one.

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Reasons for Consolidation

There are many reasons why a company may want to consolidate different parts of its business. The main consolidation benefit is efficiency. The corporate machine runs more smoothly and more efficiently with fewer moving parts. There is also a cost savings that can occur with consolidation of departments due to the elimination of redundant staff, locations, supplies, and procedures. But this also highlights one of the consolidation disadvantages: when multiple departments are joined, sometimes redundant employees have to be let go. 

Consolidation can be done within a company, but it can also be performed throughout a larger organization, such as when a parent company consolidates various companies under its corporate umbrella. Another consolidation example is when two separate companies consolidate after one buys the other.

Consolidation of Separate Companies

Consolidation can also happen between two separate, independent businesses. This is more often seen in the mergers and acquisition realm where one company decides to purchase another and the two entities consolidate their businesses. When this occurs, there could be different departments of the target business that will be dissolved or even sold off to another company. 

When there is a buyout of a smaller company by a larger company, in many instances the larger company wants some aspect of the smaller company to compliment itself, whether it be a special product, manufacturing procedures or capacities, or even a specific brand that the larger company believes would compliment their own business. 

Benefits of Consolidation

There are many consolidation advantages. Here are a some reasons why a two companies may decide to consolidate:

The bottom line is that consolidation of company units or even separate businesses may lead to increased efficiency and profits. But it’s still a significant undertaking and shouldn’t be taken lightly. 

Types of Business Consolidation

There are many ways that two or more companies can consolidate. Which system and process to use will depend upon the circumstances, the types of businesses, and the goal of the acquiring company. Here are some of the most common forms of business consolidation:

The type of process and strategy used will be dictated by the acquiring company’s reasons for deciding to acquire the target company.

Summary

Consolidation is when different departments of a company (or different companies) are combined to form one, larger unit. This is often done for the business to be more efficient and to save money.

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Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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