© Copyright Acquisition International 2024 - All Rights Reserved.

Article Image - Business Merger vs Consolidation: What’s The Difference?
Posted 24th September 2021

Business Merger vs Consolidation: What’s The Difference?

With the continuously evolving economy, business mergers and consolidations are becoming more common. Often, there are also legalities involved in both processes, which makes it important to consult with law experts.

Mouse Scroll AnimationScroll to keep reading

Let us help promote your business to a wider following.

Business Merger vs Consolidation: What’s The Difference?
3D rendered puzzle pieces with skyscrapers on top and around them

With the continuously evolving economy, business mergers and consolidations are becoming more common. There are instances where one company invests in another and does a takeover; or two companies merge to become one. Many entrepreneurs see these shifts as game-changers that may empower small companies and possibly shake up the competition in the market. 

It’s also common to use the terms ‘mergers’ and ‘consolidations’ interchangeably but they have different definitions and business natures. In addition, both acquisition processes have different outcomes and goals. Often, there are also legalities involved in both processes, which makes it important to consult with law experts, such as the Miami business attorney, to ensure a smoother transition. 

 

What Are Business Mergers? 

A merger is a business agreement between two or more companies to combine into one entity. This results in one of the companies taking over the other companies involved, which increases its capabilities while retaining its original name. The surviving company will assume all of the assets while the other companies discontinue their operations.  

Smaller companies often opt to merge with larger ones to increase their market traction and value. Mergers may also help large companies eliminate competition and grow their brand, thereby increasing their sales and revenues.  

 

Different Merger Types 

Depending on the needs of both parties, mergers come in different types:

  • Vertical: This may happen between two or more companies producing different goods that comprise the same finished product. 
  • Horizontal: This may occur between two companies that belong in the same industry.    
  • Conglomerate: This may take place between two companies belonging to unrelated industries. 
  • Product Extension: This may happen between two companies with the same products and operations.  
  • Market Extension: This may occur between two companies with the same products but different markets. 

 

What Are Consolidations? 

Business consolidation is the combination of two or more companies to become a new single entity. It’s considered to be transformative since it creates a new corporate structure and adopts the best practices from the companies involved. 

Consolidation usually happens between equal-sized companies with similar products, in the hopes of streamlining business processes and management. One notable advantage of consolidating two or more businesses is reducing its operational and overhead expenses.  

 

Merger Vs Consolidation 

Entrepreneurs often want to run their own business, free from any external influence or control. However, there are instances wherein businesses need to combine with larger companies or ones offering similar products. 

Business mergers involve two or more companies combining through a takeover and the emergence of one surviving company. On the other hand, business consolidation happens when two or more companies combine to create a new single company. Although different in some aspects, both business processes have plenty of benefits. 

Mergers are great for companies to increase their product’s market value and eliminate competition. Similarly, consolidations are advantageous for companies to streamline business processes and reduce operational expenses.

 

Company Size Matters

Small companies may turn to consolidation to improve their financial standing and buying power. This usually improves their production, especially when they have limited resources to fulfil client demands. On the other hand, merging with a dominant company may create better business deals and attract more buyers. 

Larger businesses usually acquire smaller brands to create diversity for their existing line-up. Instead of competing with start-up brands, established companies may offer mergers to acquire their product line, which limits their competition in the market. It may also help them infiltrate new markets and get new clients.

 

Not Just Assets

Going into a merger or consolidation is often a gamble. Aside from acquiring assets, the surviving company or newly formed entity may also get all the liabilities. 

As a result, these companies may have a shaky start or become overwhelmed and eventually break apart. That’s why before making any decision, it’s best to weigh all available options. Aside from that, always check the company’s assets in terms of receivables and inventory and perform due diligence to determine their full liabilities. 

 

Due Diligence

The amount of the company’s liabilities can make or break a business deal. Merging with a company with great debt can compromise the acquiring companies. This is what makes due diligence a precautionary measure that needs to be done before entering any business deal. To better understand how it works, here are its three areas: 

  • Financial: Ideally done by accountants to assess the company’s earnings, operating expenses, and sales history. This report will focus on creating an understanding of the company’s current financial health and its trends. 
  • Commercial: This is undertaken to gauge the company as a whole. It will tackle the external and internal environment of the company, as well as its commercial appeal. It will also deal with the company’s operational capabilities and its risks. 
  • Legal: Usually done after commercial due diligence, this aims to uncover any tax issues or ongoing cases. It covers the company’s long-standing contracts and distribution agreements, as well as intellectual properties and patents.  

 

The Takeaway  

Overall, both mergers and consolidations have different business natures and processes, which may have their advantage and disadvantages. With this, it’s best to keep in mind that going into either a merger or consolidation may pose different risks. Aside from taking hold of the business’s assets, it’s best to take into account its liabilities and potential risks. That’s why it’s important to conduct due diligence to fully understand the target company’s legal, commercial, and financial matters.

Categories: M&A, News


You Might Also Like
Read Full PostRead - Eye Icon
GREE International Acquires DragonSoul
M&A
07/10/2016GREE International Acquires DragonSoul

GREE International Entertainment, Inc., the Western arm of global mobile social company GREE, Inc.

Read Full PostRead - Eye Icon
Hungary and EBRD Acquire Minority Stakes in Erste Bank Hungary Zrt
M&A
20/06/2016Hungary and EBRD Acquire Minority Stakes in Erste Bank Hungary Zrt

Hungary, represented by state-owned entity Corvinus Zrt. in the transaction, and the European Bank for Reconstruction and Development (EBRD) today signed the contractual framework with Erste Group Bank AG (Erste Group) to acquire minority equity stakes of 15 p

Read Full PostRead - Eye Icon
K&E & Skadden Among Five Firms on 58.com’s Stake Acquisition in Ganji
M&A
07/05/2015K&E & Skadden Among Five Firms on 58.com’s Stake Acquisition in Ganji

K&E & Skadden Among Five Firms on 58.com’s Stake Acquisition in Ganji

Read Full PostRead - Eye Icon
Top Reasons to Hire a VA Disability Attorney for Your Claim
News
03/01/2024Top Reasons to Hire a VA Disability Attorney for Your Claim

If you’re a veteran, you know how crucial VA disability benefits can be. They’re a lifeline for those who’ve served our nation and may now face service-connected disabilities. They are a vital means of accessing financial and medical support

Read Full PostRead - Eye Icon
8 Technology Solutions to Help Expand Your Business
News
02/11/20218 Technology Solutions to Help Expand Your Business

Modern businesses must rely on various digital technologies to thrive and expand. From accounting, project management, and office communication to customer service and digital marketing, there are multiple solutions that can streamline and ultimately improve b

Read Full PostRead - Eye Icon
Tips from a Peachtree Corners Personal Injury Attorney
News
16/11/2023Tips from a Peachtree Corners Personal Injury Attorney

After a personal injury, securing fair compensation may seem like an overwhelming task. The decisions you make now can have an impact on your future, and you will want to be sure you receive the maximum amount for your damages. In a car accident, slip and fall

Read Full PostRead - Eye Icon
An Asset to the Industry
Finance
13/10/2017An Asset to the Industry

An Asset to the Industry

Read Full PostRead - Eye Icon
Privet Capital Acquisition of Aeroment from Black Diamond
Finance
04/08/2015Privet Capital Acquisition of Aeroment from Black Diamond

Privet Capital Acquisition of Aeroment from Black Diamond

Read Full PostRead - Eye Icon
Owed money? Can you deal with it yourself without engaging a solicitor?
Finance


Our Trusted Brands

Acquisition International is a flagship brand of AI Global Media. AI Global Media is a B2B enterprise and are committed to creating engaging content allowing businesses to market their services to a larger global audience. We have 14 unique brands, each of which serves a specific industry or region. Each brand covers the latest news in its sector and publishes a digital magazine and newsletter which is read by a global audience.

Arrow