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CONSOLIDATION/MARKET SHARE
This is when you buy a competitor to increase your company's market share.
Advantages include the following:
- You can quickly expand market share without investing in R&D or marketing.
- You eliminate a competitor.
- There is often plentiful opportunity to cut costs, by consolidating staff, facilities, advertising expenses, and so on.
- Because the buyer already understands the target's business, management can fairly easily integrate the acquisition or spot any danger signs should they crop up.
Disadvantages include the following:
- Other competitors of yours could start bidding wars that ultimately will hike up the price tag for acquisitions.
- Employees from two ex-competitors sometimes find it hard to cooperate.
- When negotiating a deal, it can be difficult when disclosing confidential information. May the other side ultimately walk away from the deal but have valuable competitive information?
Example: One acknowledged master in building market share is Wayne Huizenga. This high school dropout bought a garbage truck when he was 25 and proceeded to grow the business aggressively by buying out other garbage companies and eventually went public.
Realizing that the trash industry was highly fragmented, Huizenga used his public stock to go on a spending spree, acquiring heaps of other garbage companies. By the time he reached his mid-30s, he'd created Waste Management -- the country's largest garbage company.
Huizenga is also known for parlaying the $18 million Blockbuster video rental company into an $8.4 billion empire, which he sold to Viacom in 1994. With his latest venture, AutoNation, he is attempting to consolidate the $1 trillion car-sales market.
