We frequently work with companies in consolidating industries. When an industry goes through a period of consolidation, characterized by a few large companies actively and aggressively acquiring their smaller competitors, a unique set of dynamics take hold of the market. The number of companies being sold increases, as do the prices for which these companies sell. As a small business owner, if you notice your industry beginning to consolidate then you have a rare opportunity to make a significant amount of money. But, you can only achieve this if you are willing to say yes.
Two mistakes that small business owners frequently make are believing that the consolidation will last forever and believing that the valuations achieved during periods of consolidation are intrinsic to all companies in the industry.
Industry consolidators, whether corporations or private equity groups, approach M&A with the general objective to acquire as many companies as possible in as short a time as possible. Eventually, they reach a saturation point. When that happens, many put the brakes on their acquisition programs, becoming more selective, while others stop buying altogether. The focus can shift to greenfield expansion or simple organic growth. Continue reading