To consolidate literally means to merge. Market consolidation occurs when companies merge through mergers and acquisitions, reducing the total number of players in the market. Consolidating sectors with small and medium sized businesses include: Wholesale trade, IT market, Installation industry, Mechanical engineering and the Greenery industry. Sectors where large companies are consolidating include Aviation, Banking and Oil & Gas.

There can be many reasons for market consolidation, for example:

• Expertise: Market consolidation can be driven by the demand for talent. Large market players tie up valuable specialized personnel through acquisitions. Expansion of specialties increases scalability.
• Growth: When organic growth is no longer sufficient to achieve the desired growth, acquisitions are done within the sector. In this way, the strategic position is increased and the business model is perpetuated.
• Standardization: In a fragmented market, a demand for standardization arises at some point. Smaller companies then usually have to join the ecosystems of parties with more market power.
• One-stop shop: In a mature market, it becomes more challenging to offer a unique proposition. When specialization is insufficient, providers lose market share to parties with complete offerings. Market consolidation then takes place to provide a “one-stop shop” for customers.
• Digitalization: Digital transformation within the sector may be too complex to respond to on its own. If it fails on its own, scaling up or seeking mutual cooperation may be a solution.
• Increasing competition: When it becomes more difficult to get new customers and thus grow, there is often increasing competition. Prices and margins are under pressure and there is a need for scale. Customers may then choose the party that can deliver the best offer at the most competitive price, and that becomes more important than the existing relationship. Consequently, markets with increasing competition often consolidate.

You’ve probably heard of the book “The Prey,” in which ABN Amro loses out in a consolidating market. Taking a rash, ambitious course to get the bank into the top five largest international banks, Rijkman Groenink brings the bank to the brink of collapse. We all know how this ended, the hunter became a prey.

When a market is consolidating, it is good to make a good assessment of your company’s opportunities over the next 5 years. Are you in a position to grow, through a unique offering, strong market position or by acquiring parties? Or is it wise to join one of the winners in the market early?

If you want to know more about the possibilities of selling your company, it is interesting to contact FBM Corporate Finance. The sales process has many facets, all of which deserve proper attention. You don’t sell your life’s work overnight. Just making the choice to sell your company is an impactful and emotional process. Taking the time to do so is essential. But also finding the right buyer, an optimal negotiation or even the transfer of the shares at the notary should not be underestimated.