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Why Do Businesses Consolidate
In a competitive business world, companies can gain various benefits by consolidating their businesses. There could be several legal, operational and financial advantages of consolidation. Read on to know about some common reasons that push businesses to make consolidations with other firms.
To beat market competition
When companies consolidate, their capability to deal with market competition improves to a great extent. This happens due to an enhancement in their product quality and variety, as well as a cut-down in product or service costs. Due to an acquisition or merger, companies get to optimize their research and marketing capabilities. Their specialty services are also combined to offer maximum benefits to customers through optimized product pricing. This helps businesses in killing the existing competition in their niche markets.
To gain financial and tax benefits
Every parent company owning several subsidiaries needs to maintain different legal identities for all its businesses. In such cases, its subsidiaries have to file taxes and pay franchise fees at an individual entity level. However, consolidated companies can get rid of this trouble and save their taxes and finances by gaining a merged and single identity. In case of consolidation, they do not need to operate and maintain multiple entities. Thus, huge financial benefits can be achieved through mergers or acquisitions.
To grow and develop with more strength
Consolidated businesses can grow in a better manner, as their operations are optimized through a merger. There are various redundant operations that can be eliminated after consolidation. For example, some of their departments can be combined for more efficiency in serving a single entity. This could also make the payroll a little less complex. Issues related to miscommunication and uncoordinated departments can also be sorted out by merging operations. A successful consolidation between businesses can lead to a stronger and more developed organization that can effectively expand its customer reach and operations within no time.