Consolidation Definition

The term consolidation has several different meanings, depending on the context in which it is used. Consolidation may be used in the business or corporate world or it may be used to refer to a financial situation.

Business

As a business term, the term consolidation is used to describe a situation in which two different companies, lines of business such as product lines or different areas of the company become one. This is different from a merger, Which is when a new business is formed when the two businesses come together. In a consolidation, one company is left standing. Examples are the 1999 takeover of Nabisco by Kraft Foods and the acquisition of Best Foods by Unilever.

Shakeout

In a mature business market, consolidation is the process of natural selection in which successful businesses grow bigger and begin to acquire smaller businesses. In the process, this also shuts down some smaller companies. In the end, this leaves only the strongest and biggest of the companies left standing. The consolidation process is also referred to as a shakeout.

This is exactly what happened in September 2008 when bank failures hit the news on a daily basis. Merrill Lynch was soon acquired by Bank of America, which did away with Merrill Lynch but left Bank of America standing as a financial giant.

Debt

When referring to debts, consolidation is the term used when several loans are replaced with one single loan. When this occurs, it usually creates a lower loan payment and a longer loan term.

Some consumers use debt consolidation companies to assist them in working with their creditors to turn several loans or credit accounts into one loan or credit account and one monthly payment. Typically, this includes paying a lower interest rate on the consolidated loan than what the consumer was paying for each loan individually.

Other consumers take out a new loan (such as an equity line of credit) to pay off and consolidate higher interest rate debt (such as credit cards). This type of consolidation helps the consumer to pay less interest in the long run and turn several loans or credit accounts into one loan and payment.

British Government

In Britain, this is also the term given to the process of combining two or more acts, bills or statutes before they are presented to Parliament. This typically occurs for legislation that is related in some way so that it makes sense to combine two or more pieces into one.