What is consolidation? Definition and meaning
Consolidation in the world of business can mean the combining of separate companies, such as product lines or functional areas into one. It is a type of merger – but in this case a new legal entity is created. For example, in 1996 two Swiss pharmaceutical companies – Sandoz and Ciba-Geigy – merged, and became a new legal entity called Novartis.
Market saturation – in some markets consolidation refers to the process of maturation in which smaller firms are taken over (acquired) or run out of business, and only a few major players are left – known as a ‘shakeout’. In other words, there is a state of over-supply in an industry, which prompts companies to either merge, purchase competitors, or leave the sector altogether.
Equity Capital – consolidation occurs when a firm reduces the number of outstanding shares by combining a specific number of low-value shares into a higher-value one, i.e. fundamentally the same as a reverse share split.
After a consolidation merger is completed, a new legal entity is formed. Classic examples are the Bell Atlantic & GTE and Ciba-Geigy & Sandoz mergers, out of which resulted Verizon Communications and Novartis respectively.
Data Storage – in the world of information technology, specifically storage terminology, consolidation refers to the concept of centralized storage in which resources are shared among several applications and users.
Organizations have traditionally deployed servers with DAS (direct-attached storage) as file servers. However, a large number of organizations are facilitating server consolidation by deploying NAS (network-attached storage). NAS provides a single-purpose device that provides NFS (Network File System) and CIFS (Common Internet File System) connected storage that has the capacity to scale from gigabyte to petabytes.
Become Stronger – in business, the verb ‘consolidate’ can be used when talking about a company’s strengthened position, as in: “The success of John Doe’s new product consolidated its position in the market.”
Accounting – to consolidate means to show the financial results of a group of firms in one set of figures, instead of showing each one separately, as in: “When a group of companies share several economic value, it may become necessary to consolidate group accounts so that profit and loss may be better determined.”
According to The Money Advice Service: “If you’ve got lots of different debts and you’re struggling to keep up with repayments, you can merge them together into one loan to lower your monthly payments. You borrow enough money to pay off all your current debts and owe money to just one lender.”
Transporting Goods – consolidate means putting items together in order to send them, as in: “Our shipment will be consolidated with those of other customers and shipped in a container.”
Medicine – the term refers to the solidification of cells or other matter in the body into a firm, dense mass. The term is commonly used when talking about lung tissue, which alters from an aerated condition to one of solid consistency.
Consolidation Loan – a loan that is used to combine and finance all the payments on other loans.
Consolidated Tax Return – combining all the reports of affiliated companies into one. The affiliated companies are at least 80% owned by the parent company.
According to etymonline.com, word consolidation appeared in the English language circa 1400. It comes from Late Latin consolidationem (nominative consolidatio), the noun form consolidare, which means ‘to make firm, consolidate’. The Latin term comes from com- ‘together’ plus solidare ‘to make solid’.
Consolidation in other languages: (Spanish) consolidación, (Portuguese) consolidação, (French) consolidation, (Italian) consolidamento, (German) Festigung, (Russian) укрепление, (Japanese) 合併, (Chinese simplified) 合并, (Arabic) توحيد, and (Hindi) समेकन.
Quotes using the word ‘Consolidation’
“Our country is now taking so steady a course as to show by what road it will pass to destruction, to wit: by consolidation of power first, and then corruption, its necessary consequence,” Thomas Jefferson – an American Founding Father, principal author of the Declaration of Independence, third US President).
“In the European context tax rates are high and government expenditure is focused on current expenditure. A ‘good’ consolidation is one where taxes are lower and the lower government expenditure is on infrastructures and other investments,” (Mario Draghi – an Italian economist, currently President of the European Central Bank).
“We are beginning to see the benefits of global consolidation,” (Lakshmi Mittal – an Indian steel magnate, based in the UK, Chairman & CEO of ArcelorMittal, the world’s largest steel-making company).
“I am seriously troubled by the proposed rapid consolidation in the telecommunications marketplace,” (Conrad Burns – former US Senator from Montana, later a lobbyist).
“Reducing debt through budgetary consolidation is essential to restoring Europe’s financial health,” (Victor Ponta – former Prime Minister of Romania).
“I am personally convinced – and I think the Greek people share this belief in a fundamental way – that we can achieve fiscal consolidation more effectively and we can restore competitiveness in a more fundamental and permanent way within the euro area than outside,” (Lucas Papademos – former Prime Minister of Greece).
“When you run an entrepreneurial business, you have hurry sickness – you don’t look back, you advance and consolidate. But it is such fun,” (Dame Anita Roddick, 1942-2007 – a British businesswoman, environmental campaigner and rights activist. Best known as found of The Body Shop).
Video – Telecoms: a market in consolidation
European telecoms is a market in consolidation in which several household names jostle for position and upstart brands and some grand old industrial empires square off to grab market share.