CandleFocus

Amalgamation

Candlefocus Editor
Amalgamation is a type of business combination whereby two or more companies merge together without the formation of a brand-new entity. It is different from a merger, where two companies come together to form a new organization, and the two merging companies survive and continue to operate as distinct entities. With amalgamation, all of the assets and liabilities of one or more of the combining companies are transferred to an existing entity, the transferee company, and the transferor company ceases to exist.

There can be different motivations behind amalgamation, such as to increase cash resources, decrease competition, and save companies on taxes. Once the transferee company absorbs the transferor, it can have a much larger customer base and greater access to resources, making it a stronger player in the market. It can also achieve economy of scale, which can further reduce costs. In addition, taxes may be more favourable when combining companies through amalgamation.

However, amalgamation can have its drawbacks as well. If one company owns a majority of the assets, consumers may be left with a monopoly, reducing competition and choice. The transferee company may also scale down its workforce and increase its debt load, leading to a decrease in job security and sustainability of the combined entity. On the other hand, if an ill-prepared or un-strategic merger happens, the profits of both companies may suffer immensely as they would be sharing the costs of two businesses while seeing the revenues of only one.

In general, the success of amalgamation is highly dependent on the management of the two merging companies, and the decision to amalgamate should not be taken lightly. It should only be pursued with the proper due diligence and thorough planning to ensure a successful and profitable transition.

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