What is a Consolidation?

Consolidation, as it is used to describe a corporate strategy or business activity, refers to the amalgamation of several smaller entities or businesses into one larger organization. Consolidating is similar to mergers or acquisitions as they are both the act of combining various corporate entities and are executed for similar reasons. The primary difference between a consolidation and a merger would be the number of businesses involved as well as the relative sizes of those businesses prior to forming the new structure.

Consolidation may also be referred to as amalgamation and comes in several forms. A statutory merger is when the acquired company’s assets are liquidated into the surviving company. A statutory consolidation, on the other hand, is when an entirely new company is formed from the two pre-existing corporations none of which survive the consolidation. A stock acquisition is a type of consolidation in which over 50% of the common stocks are acquired by the purchasing company yet the acquired corporation survives the transaction. In an amalgamation, only the purchasing company survives.

Consolidation also refers to the accounting process encountered during such transactions. In the process, financial statements of the corporate entities are aggregated into one consolidated account. For tax purposes, the group of corporations is considered one entity. Mezzanine debt is a common source of capital for a consolidation.