When companies merge, opportunity awaits for others
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I was recently talking with some thought leaders on the subject of increased value to customers as a result of a merger. The general consensus was that mergers are usually great for Wall Street, but maybe not so great for the combined customer base and usually presented problems for the combined company cultures.
There was a WSJ article today that trumpeted Warren Buffett’s increased investment in IBM. It’s not because of IBM’s technology business. It’s because of their deep expertise in finance.
With airlines, it’s expense reduction (leverage over vendors) and expansion (buying routes that others airlines own exclusive rights).
My understanding with HP is also financial. The printer and PC businesses are different from the enterprise businesses. R&D, Sales and other functions have different motivations and goals but they fight over the same financial resources. This split might actually be good for HP and for customers, time will tell.
Most, if not all of these mergers seem to be driven by bean counters, and management almost always looses sight of the customer until the numbers show the decrease in brand loyalty a few quarters or years later. With breakdowns occurring in the mid-management levels.
The numbers look great in the short term stock markets. The long term health of the combined businesses typically suffer, but stock markets generally don’t reward long term thinking.
There is another framework that is useful in studying markets from this perspective called the Rule of Three.
According to this theory, which has been tested, a market with many players will eventually gravitate to three main players with a “ditch” between those three and the rest of the long tailed players. The leaders are typically non-innovative, and they tend to buy companies who are leading in a niche (other side of the ditch) to grow. If a market has 4 players, there will typically be consolidation between 2 of the 4. If there are only 2, one of the bigger players on the other side of the ditch will make the jump and become one of the “big three”.
The prime opportunity for long-tailed (niche) players is to watch what gaps appear when there is consolidation at the “big three” level and move to fill the gap. There will always be disgruntled customers as the result of a merger. If you are a niche player, it is worth your time to keep your pulse on the competition and update your strategy to take advantage the market confusion.
Has a consolidation occurred in your area recently? How are your competitors reacting? What opportunities have opened? Do you have the resources to go after these new opportunities? Call me to set up a time to discuss.
© Mark Travis – All Rights Reserved
www.travis-company.com
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