But, our research suggests, every company in every industry will go through these four stages—or disappear.
Thus, an understanding of where in the cycle an industry is should be the cornerstone of a company’s long-term strategic plan.
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The pace of mergers and acquisitions has fallen off drastically in the past few years, but, this author says, we are on the cusp of another wave of M&A activity.
I’ve studied industry consolidation in business school, participated in a few industry consolidations as a consultant, and I founded a company in my current portfolio to take a lead role in consolidating its target industry.
Industry consolidation is almost inevitable: over time, most industries will consolidate to where the largest three to five companies will dominate an industry and the rest of the smaller players are rendered almost irrelevant as they retreat to specialty niches.These components can include product lines at the company level or companies themselves at the industry level.The consolidation of companies differs from mergers in that consolidations create new entities while mergers do not.From our study of 1,345 large mergers completed over the past 13 years, we have concluded that, once an industry forms or is deregulated, it will move through four stages of consolidation (see the exhibit “Industry Consolidation Life Cycle”).Today, we predict, an industry will take on average 25 years to progress through all four stages; in the past it took somewhat longer, and in the future we expect it to be even quicker.As an industry grows and attracts more attention, there are leaders that emerge to take the industry to a new level of performance in phase two as the industry transforms from an owner/operator industry to a more mature and more consolidated industry.