Business amalgamation or commonly known as business combination is an essential element of corporate restructuring. In this competitive global business world this is known to be the backbone of all businesses across the globe. It is a simple way to bring two or more companies together to form larger companies and reduce the pressure of the cut throat competition in the market.
There are many different ways and methods to achieve such amalgamation or combination. Depending on the existing structure, name, and financial status of the company, different companies adopt different methods of combination. Some of the most common types of business amalgamation are as follows:
Merger is a combination that mainly refers to asset liquidation of the acquired. Two or more companies combine together and lose their identity to any one existing company. Only one from the combined companies live its identity and the remaining lose their name and their assets to the acquiring company.
An acquisition is a kind of business combination that refers to purchase of a company’s asset. In this type one company that is more stable and financially strong in the market buys the assets of the weaker company and integrates all the operations in its own firm. The stronger company buys the assets of the target company and then takes over the company with all its assets and liabilities. This type is much similar to a merger but is known to be a forceful combination.
Consolidation is a kind of association in which two or more companies of same size come together to form a new identity in the market. All the combined companies share equal shares, assets, and liabilities along with their resources, talent, technology, and other essentials. The combined companies loose their name and identity and are finally known by the new structure and name.
Divestiture is not a complete venture but a partial combination that refers to disposal or assets, shares, and investments through sale, exchange, or bankruptcy. This exchange or selling can be done slowly and steadily over a period depending on the needs and financial condition of the selling company. It is known to be a simple way to improve the value of shareholder or as a means to raise capital.
A leveraged buyout (LBO) is one kind of amalgamation or acquisition that takes place when financial sponsors or group of investors borrow money to purchase a company. This involves companies of all sizes, financial structure, and industries. All the assets and the future profits of the purchased company are mainly secured in response to the funding used for purchase. The main purpose of leveraged buyout is to create large acquisition without the need of any commitment to lot of capital and funds.