Should I sell my business when market consolidation occurs?
The economies of scale that other companies reach through market consolidation can make business owners realize their size is not enough to survive and ask themselves this question: Should I sell my business?
Ask yourself if there is enough business for all the competitors
Are there companies that are disappearing? Is there market consolidation? The growing interdependence of economies across the planet has accelerated cross-border M&A deals, forcing local companies to acquire the sufficient critical mass to compete against global players.
The entrance of larger, competitive foreign players shrinks margins and at the same time forces local companies to spend more to keep up with their research, development, and innovation capacities. To survive, many companies are forced to merge in order to reduce cost or gain enough market share to create economies of scale.
When should I sell my business
A warning sign for the business executives is when customers start to vertically integrate, buying competitors and consequently buying their products and market share.
We had a client that started to worry when he saw how the big groups of his industry were being acquired by competitors or by private equity companies. He realized that with his own resources, his company would not be able to compete against corporations with more capabilities and decided to sell before it was too late. Fortunately, we were able to ride the consolidation wave and sold the company to an American group that had to put in a high offer in order to win the auction against a Dutch group and various private equity firms.
We have seen many executives and business owners who did not notice, or chose not to notice, the signs of a consolidation in their sector. They failed to take the initiative and proactively join the M&A wave, hoping that out of nowhere the day would come when they would receive an offer. Unfortunately, that day never came, and instead these business owners lost everything.
This sad reality is especially relevant when it comes to family businesses, as 70% of them are not passed on to the next generation. The sale of a company is one of the most important decisions that a businessperson makes in both his or her business and personal lives. It takes courage not to be caught in the sector consolidation trap.