Consolidation, by contrast, involves the combination of two or more firms to form a completely new corporation. The new corporation normally absorbs the assets and liabilities of the companies from which it is formed. Because of the similarity of mergers and consolidation, the term merger is used throughout this chapter to refer to both. Consolidation in business can mean combining separate companies. All of each company’s assets and liabilities then become the property of the new company.
Consolidation is used to develop operational effectiveness by reducing redundant personnel and processes. It can attain cheaper financing if the consolidated entity is more stable, more profitable, or has more assets to use as collateral.
Consolidation has many meanings, depending on the situation. Below are some examples:
- Market saturation: In some markets, consolidation refers to the process of maturation. Market saturation occurs when there too much supply in industry.
- Equity Capital: Consolidation occurs when a company reduces the number of outstanding shares.
- Accounting: In accounting, it means to show the financial results of a group of firms.
- Transporting Goods: In the transportation of goods, it may mean putting different items together in one container.
- In computing, it refers to when data storage or server resources are shared among multiple users and accessed by multiple applications.