Amalgamation: Definition, Types, How to Use, Pros and Cons

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Amalgamation: Definition, Types, How to Use, Pros and Cons

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What Is an Amalgamation?

An amalgamation is a combination of two or more companies into a new entity. Amalgamation is distinct from a merger because neither company involved survives as a legal entity. Instead, a completely new entity is formed to house the combined assets and liabilities of both companies.

The term amalgamation has generally fallen out of popular use in the United States, being replaced with the terms merger or consolidation even when a new entity is formed. But it is still commonly used in countries such as India.

Key Takeaways

  • Amalgamation is the combination of two or more companies into a brand new entity by combining the assets and liabilities of both entities into one.
  • This differs from a traditional merger in that neither of the two companies involved survives as an entity.
  • The transferor company is absorbed into the stronger, transferee company, leading to an entity with a stronger customer base and more assets.
  • Amalgamation can help increase cash resources, eliminate competition, and save companies on taxes.
  • But it can lead to a monopoly if too much competition is cut out, scale down the workforce, and increase the new entity’s debt load.

Understanding Amalgamations

Amalgamation typically happens between two or more companies engaged in the same line of business or those that share some similarity in operations. Companies may combine to diversify their activities or to expand their range of services.

Since two or more companies are merging together, an amalgamation results in the formation of a larger entity. The transferor company—the weaker company—is absorbed into the stronger transferee company, thus forming an entirely different company. This leads to a stronger and larger customer base, and also means the newly formed entity has more assets.

Amalgamations generally take place between larger and smaller entities, where the larger one takes over smaller firms.

The Pros and Cons of Amalgamations

Amalgamation is a way to acquire cash resources, eliminate competition, save on taxes, or influence the economies of large-scale operations. Amalgamation may also increase shareholder value, reduce risk by diversification, improve managerial effectiveness, and help achieve company growth and financial gain.

On the other hand, if too much competition is cut out, amalgamation may lead to a monopoly, which can be troublesome for consumers and the marketplace. It may also lead to the reduction of the new company’s workforce as some jobs are duplicated and therefore make some employees obsolete. It also increases debt: by merging the two companies together, the new entity assumes the liabilities of both.

Pros

  • Can improve competitiveness

  • Can reduce taxes

  • Increases economies of scale

  • Potential to increase shareholder value

  • Diversifies the firm

Amalgamation Procedure

The terms of amalgamation are finalized by the board of directors of each company. The plan is prepared and submitted for approval. For instance, the High Court and Securities and Exchange Board of India (SEBI) must approve the shareholders of the new company when a plan is submitted.

The new company officially becomes an entity and issues shares to shareholders of the transferor company. The transferor company is liquidated, and all assets and liabilities are taken over by the transferee company.

In accounting, amalgamations may also be referred to as consolidations.

Example of Amalgamation

In late 2021, it was announced that media companies Time Warner and Discovery, Inc. would combine in a deal worth an estimated $43 billion. Owned by AT&T, Time Warner (which the telecom company acquired in 2018) would be spun off and then amalgamated with Discovery. The new entity, known as Warner Bros. Discovery, Inc., is expected to close at some point in late 2022 and will be headed by Discovery CEO David Zaslav.

Types of Amalgamation

One type of amalgamation—similar to a merger—pools both companies’ assets and liabilities, and the shareholders’ interests together. All assets of the transferor company become that of the transferee company.

The business of the transferor company is carried on after the amalgamation. No adjustments are made to book values. Shareholders of the transferor company holding a minimum of 90% face value of equity shares become shareholders of the transferee company.

The second type of amalgamation is similar to a purchase. One company is acquired by another, and shareholders of the transferor company do not have a proportionate share in the equity of the combined company. If the purchase consideration exceeds the net asset value (NAV), the excess amount is recorded as goodwill. If not, it is recorded as capital reserves.

What Are the Objectives of an Amalgamation?

An amalgamation is similar to a merger in that it combines two firms, but here a brand new entity is formed as a result. The objective is thus to establish a unique entity that rests on the business combination in order to achieve greater competitiveness and economies of scale.

What Are the Methods of Accounting for Amalgamation?

There are two primary ways to account for an amalgamation. In the pooling of interests method, the transferee company takes on the balance sheet of the transferor—valued at the date of amalgamation. In the purchase method, assets are treated as acquired by the transferee where discrepancies are accounted for as goodwill or a capital surplus.

What Is an Amalgamation Reserve?

The amalgamation reserve is the amount of cash left over by the new entity after the amalgamation is completed. If this amount is negative, it will be booked as goodwill.

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What Is an Assortment Strategy in Retail, and How Does It Work?

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What Is an Assortment Strategy in Retail, and How Does It Work?

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What Is an Assortment Strategy?

An assortment strategy in retailing involves the number and type of products that stores display for purchase by consumers. Also called a “product assortment strategy,” it is a strategic tool that retailers use to manage and increase sales. The strategy is made up of two major components:

  1. The depth of products offered, or how many variations of a particular product a store carries (e.g. how many sizes or flavors of the same product).
  2. The width (breadth) of the product variety, or how many different types of products a store carries.

Key Takeaways

  • An assortment strategy is a strategic retail industry sales tool that optimizes the variety of goods offered for sale.
  • This strategy is centered around the concepts of “a deep assortment” and “a wide variety.”
  • Product assortment strategies got their start in the context of brick-and-mortar stores, but have since been carried over successfully to e-commerce platforms.

How Assortment Strategies Work

Essentially, a product assortment strategy is a retail industry sales tool with the concepts of depth and breadth at its core. However, not all retailers will be able to use both components of this strategy at the same time.

An assortment strategy can have many layers of sub- and related strategies, as each store will need to tailor the strategy to address its own particular needs and goals.

A deep assortment—the opposite of a narrow assortment—of products means that a retailer carries a number of variations of a single product. A wide variety—the opposite of a narrow variety—of products means that a retailer carries a large number of different kinds of products.

An assortment strategy is not one-size-fits-all; it needs to be customized to respond to a business’s parameters.

A Challenge for Small Stores

Retailers face a trade-off when determining an assortment strategy. Choosing both a wide variety and a deep assortment of products simultaneously requires a large amount of space, and is typically reserved for big-box retailers.

Stores with smaller spaces may choose to specialize in a certain type of product and offer customers a variety of colors and styles; other stores may offer a deep assortment of products but a narrow variety—one reason why a 7-Eleven (private since 2005) might carry just one brand of canned cat food, for example, while a Kroger (NYSE: KR) likely would have the space to stock 12 brands of canned cat food, if it chose to.

A Brick-and-Mortar Term

Originally, assortment strategy referred only to brick-and-mortar stores because the strategy’s components of depth and breadth had a lot to do with physical space and the visual and tactile interaction between consumer and product. Recently, though, all sales venues—brick-and-mortar, click and mortar, and e-tailing—have used varieties of the strategy to gain competitive advantage.

Adjusting for Demographics

By grouping together items that they believe will appeal to certain types of customers, retailers may fine-tune their assortment strategies to target consumers’ demographic profiles. If a retailer wants to attract customers who are new parents, for example, it might fill the shelves with infant apparel from trendy brands, along with toys, bedding, and other products new parents need.

A Strategic Selling Tool

A strategically arranged product assortment can upsell customers on supplemental items as they search for the item that brought them to the store.

Grouping related items together strategically, whether or not they are necessities, is a common way to stimulate impulse buying:

  • By placing garden hoses near sprinklers and other lawn-care products, a retailer might drive more into a customer’s basket. Likewise, installing a luxurious patio dining set—complete with attractive outdoor dishware and bar accessories—in the middle of the more prosaic yard-care products could even send some customers scurrying to the housewares section of the store.
  • A presentation of flashlights—or any battery-driven product—could include a nearby display of the batteries needed to use the product. Or a manager could locate the batteries near the check-out counter to remind customers before they leave the store that the flashlight won’t work without batteries.

Potential Disadvantages of Assortment Strategies

Although the depth of product assortment may help attract customers, there are certain caveats to relying only on an assortment strategy. If items in an assortment are placed incorrectly, the demand for these products may vary drastically.

If less-popular items are mixed in with popular items, for example, they could detract from the more-popular items’ appeal. Or, if the assortment is too vast, customers may have difficulty finding the item they are seeking. Overwhelming shoppers with too many buying options can be counterproductive and discourage customer engagement.

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8(a) Firm

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What is an 8(a) Firm?

An 8(a) firm is a small business that is owned and operated by socially and economically disadvantaged citizens and that has been accepted into the 8(a) Business Development Program. This program is administered by the Small Business Administration (SBA), the United States agency charged with supporting the growth and development of small businesses. The 8(a) program is designed to help disadvantaged entrepreneurs get government contracts and access the economic mainstream in America.

Key Takeaways

  • 8(a) firms are small businesses that are owned and controlled by socially and economically disadvantaged individuals.
  • The (8)a Business Development Program is run and administered by the SBA, or Small Business Administration, with the goal of giving a leg up to specially selected small businesses.
  • The 8(a) program helps aspiring entrepreneurs obtain government contracts and also includes mentoring, procurement assistance, training, financial assistance, management assistance, and technical assistance, among other benefits.
  • Applicants go through a rigorous application process for 8(a) status. 8 (a) status lasts up to nine years from when it is granted.

How 8(a) Firm Status Works

The 8(a) status is specially granted by the SBA to any small business that qualifies, making it eligible for financial assistance, training, mentoring, and other forms of assistance. In order to qualify for this special status, businesses must be owned and operated by individuals who are considered socially and economically disadvantaged. These individuals may have been subject to racial or ethnic prejudice or cultural bias.

The 8(a) status is outlined specifically in Section 8(a) of the Small Business Act, and is designed to help small, disadvantaged businesses compete in the general market. The federal government has a stated goal of awarding at least 5% of federal contracting dollars every year to these businesses.

The Purpose of the 8(a) Business Development Program

One of the main reasons behind the creation of the 8(a) status was to increase business involvement by a broader portion of society. The SBA identifies several groups that are eligible for 8(a) status, including Black Americans, Hispanic Americans, Native Americans, Asian Pacific Americans, and Subcontinent Asian Americans. Someone who is not a member of one of these groups may still get into the program if they can show significant evidence of having been socially disadvantaged—for instance, due to race, ethnic origin, gender, and physical handicap, among other causes.

Through the 8(a) Business Development Program, owners can compete for special contracts, such as sole-source government contracts for which there are no competitive bids, that help level the playing field for their small businesses. These small businesses can use the program to form joint ventures with already-established businesses to form mentor-protégé relationships, as well as for management and technical assistance. Businesses must meet certain requirements to be eligible to be a protégé.

Qualifications for 8(a) Firm Status

In order to qualify to become an 8(a) firm under SBA guidelines, a business must meet the following criteria (effective July 15, 2020):

  • It must be a small business.
  • It must not have participated in the program before.
  • At least 51% of the business must be owned and operated by U.S. citizens who are considered economically and socially disadvantaged.
  • The owner’s personal net worth must be no higher than $750,000
  • The owner’s average adjusted gross income (AGI) must be $350,000 or less.
  • The owner must have no more than $6 million in assets.
  • The owner must be of good character.
  • It must show the potential for success and be able to perform successfully on contracts.

Title 13 Part 124 of the Code of Federal Regulations (CFR) spells out who qualifies for the 8(a) program as well as what counts as being economically and socially disadvantaged.

Small businesses with 8(a) status can receive sole-source contracts, up to a ceiling of $4 million for goods and services and $6.5 million for manufacturing. 

The first step: getting certified

Owners interested in taking part in the program are encouraged to do an on-line training and self-evaluation course through the 8(a) Business Development Suitability Tool. The course helps entrepreneurs determine whether or not their company meets the qualifications for the 8(a) program and if it does not, directs them to an appropriate SBA resource.

Before a firm can participate in the 8(a) program, it must first be certified at certify.SBA.gov. And small businesses that want to use the certification website must have a profile at SAM.gov, which is where companies register to do business with the U.S. government. (Contact your local SBA office if you have questions about applying.) Once you have applied, the administration will send a notification letter explaining whether the business was accepted into the 8(a) program. The certification lasts for nine years—the first four years are considered to be developmental, while the remaining five are deemed to be a transition phase. 

Small businesses that gain 8(a) status are subject to annual reviews in order to keep the designation and their good standing in the program. During these reviews, the business owner has to draw up business plans and undergo systematic evaluations. Entrepreneurs who have secured 8(a) firm status say that the application process can be lengthy and rigorous, having prior experience with government contracts can be helpful, and working hard to take advantage of the program’s benefits can make the experience very rewarding.

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Augmented Product: Definition, How It Works, and Examples

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Augmented Product: Definition, How It Works, and Examples

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What Is an Augmented Product?

An augmented product has been enhanced by its seller with added features or services to distinguish it from the same product offered by its competitors. Augmenting a product involves including intangible benefits or add-ons that go beyond the product itself.

Examples of the features used to create augmented products might include free delivery or in-home installation of a service. Cosmetics companies tend to offer free makeovers and travel-size samples to augment their products.

Key Takeaways

  • Every product comes in at least three versions: the core, the actual, and the augmented.
  • The augmented product adds features and services that distinguish it from the same or similar products offered by other sellers.
  • Product augmentation doesn’t change the actual product, but instead, adds value to the purchase.
  • An augmented product may have a perceived value that gives the consumer a reason to buy it and may allow the seller to command a premium price.

How an Augmented Product Works

To marketing professionals, every product comes in at least three versions: The core, the actual, and the augmented.

Core Product

The core product is not a physical object. It is the product’s benefit to the consumer. For example, a lipstick will make its buyer attractive; a pair of sneakers will make her healthier; a new phone will help you communicate more efficiently.

Actual Product

The actual product is the item for sale, including the unique branding, design, and packaging that is attached to it. The actual product and its features must deliver on the core-product expectations that consumers want from the product. A car, for example, should function seamlessly with all of its features to deliver the core product and create customer value.

Augmented Product

The augmented product adds on features and services that distinguish it from similar products offered by the competition. The add ons don’t change the actual product and may have a minimal impact on the cost of producing the product. However, an augmented product may have a perceived value that gives the consumer a reason to buy it. The added value may also allow the seller to command a premium price.

Augmentation doesn’t change the product being sold. However, augmentation adds value to the experience for the consumer and can lead to brand loyalty.

Examples of Augmented Products

It’s no secret that companies that can effectively create augmented products create a positive buying experience and have the best chance of developing a loyal base of repeat customers.

Apple TV

Apple Inc. (AAPL) launched its video and TV streaming service in 2019. To boost awareness of the new product and increase sagging iPhone sales, the company created an add-on or augmentation for anyone purchasing a device as stated below from the company’s website.

“Starting today, customers who purchase any iPhone, iPad, Apple TV, iPod touch or Mac can enjoy one year of Apple TV+ for free.”

Discounts and Freebies

A discount coupon for a future purchase is a product augmentation, as is an offer of a refund if the customer is dissatisfied. A free recipe book offered with the purchase of a kitchen appliance such as a crockpot creates an augmented product.

More expensive purchases often come with enhanced augmentation. In-store financing for furniture purchases, a free trial, or free delivery all augment the product being offered. A cable company competing for new business might offer a more convenient home installation schedule to attract customers.

Service Sells

Good customer service and store ambiance are augmentations that brick-and-mortar retailers add to their entire range of products. A generous return policy and in-store demonstrations are others. A retail store that sells cooking supplies might offer free cooking classes with each purchase. Apple, for example, offers teaching and guidance for how to use their products through their retail locations. An engaging website to help customers learn about a product or service, as well as an online support team, are product augmentations.

In considering almost any purchase, consumers have a wealth of options. An augmented product has been made to stand out from other products, or the same product offered by other sellers.

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