Why Does a Company Consolidate?

Consolidating a company is a fundamental business strategy that can produce significant financial and legal benefits. A successful consolidation can significantly improve the long-term viability of a company by increasing its operating efficiency and lowering overall cost. This process is particularly useful for large or expanding companies.

Market Competition

Consolidation can increase a company's ability to beat competition by improving the variety, quality or cost of its services or product. When two competitors consolidate after a merger or acquisition, they no longer compete with one another. Instead, the combined research, marketing and specialty services provides an advantage over remaining competitors.

Finances and Taxation

Before consolidation, a parent company owns one or more subsidiary companies. Each subsidiary retains its legal identity and, depending on its entity classification, must file its own taxes, franchise fees and annual reports. After consolidation into a single entity, the company only files taxes and reports once and does not need to pay fees to maintain multiple entities.

Redundant Departments

Consolidation improves the efficiency of day-to-day operations of large businesses by eliminating redundant departments. Departments like marketing, public relations and human resources are combined to serve the newly consolidated company. This decreases the complexity of payroll and employment taxes while improving communications and coordination within the merged departments.

References

• Federal Trade Commission: Statement Concerning Mergers and Corporate Consolidation in the New Economy
• US Department of Justice: Statement Concerning Mergers and Corporate Consolidation