High Levels Of Consolidation Result In Sector Outperformance: Goldman
Mergers and acquisitions are often seen as risky, since mature businesses with cash on hand may be looking for growth without considering whether M&A activity actually produces returns above the cost of capital.
Consolidation reduces competition, improves stickiness
“There is a natural pull toward consolidation among mature or maturing industries. An oligopolistic market structure can turn a cut-throat commodity industry into a highly profitable one,” writes Goldman Sachs analyst Robert D. Boroujerdi. “A smaller set of relevant peers faces lower competitive intensity, greater stickiness and pricing power with customers due to reduced choice, scale cost benefits including stronger leverage over suppliers, and higher barriers to new entrants all at once.”
This content is exclusively for paying members. Access all of our content on including years of timeless investment news and in depth analysis for only a few dollars a month by signing up here while also supporting quality content and journalism, or learn more about our premium content here
If you are subscribed and having an account error please clear cache and then cookies if that does not work email firstname.lastname@example.org and we will get back to you as quick as humanly possible