Characteristics of a consolidating industry
Lucky for us, with the content available on Fact Set we can get a much better idea with some relatively simple queries across Fact Set M&A and Fact Set Entity Data Management Solutions (DMS).
There are roughly 3 million companies in DMS and 600,000 deals in M&A.
Waste Management's acquisition of 133 small-time haulers quickly became the largest waste disposal company in the US.
The characteristics that can make a rollup attractive are: there are many small players in fragmented markets or: where technology can play a role in revitalizing industries with small margins but technology can impact growth and profits.
An investor faced with an opportunity to invest in two competing companies may reduce risk by simply investing in both and merging them.
Conversely, analysis at the sector level will widen the view. No one has a complete record of every single company in the world or every single deal over the last 20 years, so any analysis is more guideline than absolute.
Investment managers and investment bankers alike have a lot to gain from accurate timing of industry consolidation.
Deal advisors perhaps less so, because as we’ve already seen, deals are driven by people as often as economic forces.
It also has the effect of increasing the valuation multiples the business can command as it acquires greater scale.
Rollups may also have the effect of rationalizing competition in crowded and fragmented markets, where there are often many small participants but room for only a few to succeed.The darker shades indicate a higher ratio of deals to companies, or more consolidation in the industry.