Consolidation Phase

What Is the Consolidation Phase?

The consolidation phase is a stage in the industry life cycle where rivals in the industry begin to converge with each other. Companies will look to consolidate to gain a larger portion of overall market share and to exploit [synergies](/cooperative energy).

Every one of these things can increase top-line revenue and company valuation to work on corporate fundamentals and make shares of their stock more appealing to investors.

Understanding the Consolidation Phase

Consolidations and mergers are typically pursued as a form of inorganic growth when the organic growth phase of industry formation has passed. Companies frequently blend or consolidate fragments to cut down on costs, accomplish more efficient operations or cease product lines that are not performing as well as others. This is done when a company has matured and is as of now not in its growth phase. It frequently makes a company more appealing to investors.

Say the video game industry is starting to mature, and thus, individual gaming companies start to secure other video game creators and combine to form larger elements; this would be an illustration of a consolidation phase for the industry.

The Industry Lifecycle

Consolidations and mergers happen late in the industry lifecycle. The phases of the industry life cycle are presentation, growth, maturity, consolidation, and decline.

During the presentation phase, a company or many companies might be working hard to present another product or service into the mainstream. During the growth phase, the new product or service has gotten on and companies engaged with making or conveying the product or service are encountering large measures of organic growth as demand for their product increases. This is where bunches of new companies enter the industry.

In the mature phase, there is normally a shake-out of effective from fruitless companies. In late maturity, companies might start to consolidate as organic growth eases back and they search for ways of expanding their market share and squeeze their growth.

Illustration of Industry Lifecycle Analysis

There was a boom in social media during the mid 2000s due to the progress of Myspace, a social networking site that outperformed Google as the most visited place on the Internet in 2006. Sites like Orkut (a Google venture) and Bebo contended to gain users in a crowded scene.

Facebook, which had begun in 2004, was additionally fast gaining foothold among universities and was viewed as the second most well known social media site. There were indications of consolidation when Myspace was acquired by Rupert Murdoch's Newscorp. Ltd. for $580 million of every 2005.

In any case, that valuation ended up being inflated after Facebook surpassed MySpace in rankings. MySpace at last diminished into irrelevance after Facebook turned into a social media behemoth. With the exception of a couple, similar to Twitter, other social media sites likewise dropped off the radar.

The social media sites that endure made a pounding debut on the stock market. Their valuations were viewed as high in comparison to their revenues, fundamentally in light of the fact that investors expected critical growth in the future as social media became famous all through the world.

Highlights

• The phases of the industry life cycle are the presentation, growth, maturity, consolidation, and decline.
• This is finished after growth opportunities for individual companies become meager, and financial standing must be superior through combination.
• The consolidation phase is a later part of the industry lifecycle when companies in a similar sector start to get and converge with each other.