Council Post: Strength In Numbers: This Is The Time For Mergers And Acquisitions
As we all know, these are extraordinary and unprecedented times. A number of industries are experiencing significant fragmentation, and many of the companies in these sectors are ready to be rolled up. The travel and hospitality industry has taken the brunt of the blow this past quarter, as have sports and entertainment, furniture and home furnishings … even dentists, according to Business Insider. Retail has been devastated, with former giant JCPenney now bankrupt and closing stores across the U.S.
The ongoing disruption Covid-19 has brought to the marketplace has created innumerable opportunities for mergers and acquisitions (M&A). There are bargains to be had, niche markets to be cornered and economies-of-scale to be achieved. It makes a lot of sense to consider the many M&A opportunities now on the market; the market is ripe for consolidation and roll-ups. M&A in this marketplace are also a great way to rescue failing companies, and the jobs they provide, while enabling customers to continue to obtain these companies’ products and services. It’s a win-win.
We saw a similar situation in the late ’90s during and after the dot-com crash, when the tech and internet industries underwent seismic fragmentations. There were orphaned companies everywhere, and entrepreneurs with an eye for roll-ups came out ahead. This was when I rolled up five data and marketing technology businesses under Naviant, including eDirect, an industry leader in permission-based email marketing at the time. Naviant soon became the leading collector of opt-in consumer data through produce warranty registrations. The combined corporate entity was sold to Equifax for $135 million in 2002. Much like the period during and after the dot-com crash, the current pandemic makes many of the smaller building blocks available to create larger, stronger, more profitable entities.
I’m not alone in thinking this is a great time to buy. In a recent CNBC interview, Warren Buffet talked about buying businesses right now to own for 20 or 30 years. And, of course, the Charles Schwab-TD Ameritrade merger underlines this sentiment: In the second half of the year, Schwab plans to close, and integration will take another 18 to 36 months.
This April, the number of bankruptcies declared increased by 26% compared with April 2019, with 560 filings. Some big names are on this list, including Diamond Offshore Drilling, Frontier Communications, Gold’s Gym and Intelsat. Northwest Fiber is capitalizing on Frontier’s condition by purchasing Frontier’s Idaho, Montana, Oregon and Washington operations and assets for about $1.3 billion in cash. This is a great deal for Northwest Fiber, and it’s a significant contribution to the liquidity Frontier needs. Industry consolidation is trending across a variety of sectors: other M&A activity spurred by Covid-19 includes Western Union’s recent offer to buy MoneyGram and Zynga just bought Peak Games for $1.8 billion.
I think this summer we’re going to see a lot more announcements like this, and I urge you to start looking around for the kind of bargains that can take your business to the next level. As the dot-com crash and the crash of 2008 demonstrated, it’s often at moments of turbulence, uncertainty, and upheaval when we avail ourselves of new strengths. Start examining opportunities, seeing what you can acquire, in whole or in parts, that will make an accretive contribution to your enterprise’s critical mass while supporting growth and creating jobs. Is there a new technology under development by a company weakened by the pandemic that could be salvaged? Is there an entity similar to yours in your industry which, merged with yours, might make the combined concern an industry player or powerhouse? Keep your eyes open, do some due diligence, and take the long “Buffet” view.
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Originally published at https://www.forbes.com.