Often, small business owners consider consolidating with another company to increase size or sales, lower operational costs, or improve management. While these are common motivations, it’s important to research the type of company that would be a good fit. It’s also helpful to consider whether a company could successfully merge with any existing companies and, if so, what the outcome of that merger might look like.
Mergers are a complex topic and can have many different outcomes. There are two ways to consolidate companies, mergers and acquisitions. The most important difference between the two is that a merger forms a new entity; an acquisition does not. In a merger, one company takes over the assets and decision-making powers of another. The purchasing company typically keeps its name, while the acquired company either dissolves or becomes a subsidiary.
An example of a merger is when a large department store acquires a smaller grocery chain to expand its market share in that region. The resulting organization may decide to keep both brands, combine the names or drop one altogether. The process of choosing a brand name is known as brand architecture, and it can have a significant impact on revenue growth after the transaction.
Another common type of consolidation is a conglomerate acquisition. This type of merger happens when companies in different industries have little to no overlapping factors. For example, a company that manufactures clothing and snacks might purchase a snack food manufacturer for the purpose of increasing its client base in other markets.