The industry is consolidating through mergers and acquisitions

Symptom: The industry is consolidating around a few large competitors as these competitors acquire other industry players.

Implications for the market:

  • Acquisitions increase margin pressure on the industry. When two companies consolidate their operations, the cost structure of the resulting company goes down because overhead is reduced. This larger merged firm can then use its lower cost structure either to initiate or to sustain lower prices. The result is intensified, rather than eased, industry margin pressure.

  • At the same time, it is often less expensive for a firm to buy another firm in order to gain its customer base than it is to win those customers with better performance or price.

  • Mergers and acquisitions therefore put pressure on those who do not participate but offer opportunities to those who do participate in an effective manner. The key to a successful acquisition is usually customer retention rather than the purchase price of the acquisition.

Recommended Reading
For a greater overall perspective on this subject, we recommend the following related items:


Perspectives: Conclusions we have reached as a result of our long-term study and observations.

  • "Making Acquisitions Work in Hostile Markets"
    Strategic acquisitions can help a company through hostility, but the acquisition target must add the right customers to the buyer's base and reduce unit costs without sacrificing customer service.

  • "Acquisitions: The Buy or Win Decision"
    Acquisitions are common in hostile market places. To understand why, in those industries, acquisitions make sense consider what hostility means for companies trying to survive to better times.

  • "Buying Share, Not Sand"
    One practical way to gain significant share during hostility is through acquisitions. But an acquisition will be successful only if it brings a significant base of loyal new customers.

  • "Getting Bigger, Getting Smarter"
    During hostility, acquisition is a realistic path to achieving, quickly, significant share growth. The full value of the acquisition can be achieved, though, only if reductions in cost occur along with market share growth.