© Copyright Acquisition International 2025 - 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
Innovative Leaders: Counted4
Strategy
19/03/2015Innovative Leaders: Counted4

Counted4, based in the north-east of England, was set up to provide high quality, treatment for those suffering from substance misuse, and to address the failings of the existing treatment system. We spoke to John Devitt, Chief Executive, Counted4 Group, to le

Read Full PostRead - Eye Icon
Industrial Businesses: Lowering Costs To Better Your Bottom Line
Finance
27/09/2022Industrial Businesses: Lowering Costs To Better Your Bottom Line

Starting up and maintaining your industrial business to be profitable is a challenge. The start up costs are some of the highest for any industry, with the highest costs associated with purchasing and maintaining equipment. 

Read Full PostRead - Eye Icon
Top 4 Innovations That You Need to Include in Your Business in 2022
Innovation
31/01/2022Top 4 Innovations That You Need to Include in Your Business in 2022

Innovation is a critical component of any successful business. By 2022, businesses that fail to embrace innovation will find themselves at a disadvantage compared to those that do.

Read Full PostRead - Eye Icon
A Personal Experience in a Stubbornly Impersonal Industry
Innovation
31/08/2016A Personal Experience in a Stubbornly Impersonal Industry

Crazy Web Service works with all types of business models, from small businesses, charities to communities across the globe.

Read Full PostRead - Eye Icon
Understanding VAT Assessments: Key Advice for Businesses
Finance
08/10/2024Understanding VAT Assessments: Key Advice for Businesses

Declaring and paying VAT is one of the many routine legal responsibilities resting on the shoulders of businesses.

Read Full PostRead - Eye Icon
Strategic Partnership and Optional Merger Agreement to Develop Antibody Drug Conjugates and Bi-Speci
M&A
08/01/2016Strategic Partnership and Optional Merger Agreement to Develop Antibody Drug Conjugates and Bi-Speci

Zymeworks Inc. and Kairos Therapeutics Inc., both privately-held biotech companies headquartered in Vancouver, announced today they have entered into a strategic partnership.

Read Full PostRead - Eye Icon
Is Facebook Advertising the Right Choice for your Business?
News
29/11/2022Is Facebook Advertising the Right Choice for your Business?

No matter the industry in which your business operates, social media can act as an extremely powerful marketing tool, allowing you to expand your reach and connect with customers who may not have known about your brand otherwise.

Read Full PostRead - Eye Icon
How an Accountant Can Be Beneficial for Your Business
Finance
11/06/2021How an Accountant Can Be Beneficial for Your Business

Behind every successful business is a dedicated workforce that works tirelessly under the leadership of a great business person. However, supporting the leader in making some of the big decisions for the company, in particular decisions regarding finance, is a

Read Full PostRead - Eye Icon
Four Key Elements can Deliver a Successful Data Mesh Strategy, says STX Next
News
11/06/2024Four Key Elements can Deliver a Successful Data Mesh Strategy, says STX Next

Domain ownership, information as an asset, data catalogues and context-aware governance should all inform how architecture is modelled and used



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