Consolidation is the new industry watchword. As we discussed in our last post, industry experts expect consolidation to affect every sector of the U.S. economy as we struggle to climb out of the current recession. The good news is that some experts, particularly Federal Reserve Chairman Ben Bernanke, are now cautiously predicting an end to the recession this year. Echoing a statement he made to Congress last month, Bernanke said in an interview with CBS’ 60 Minutes this week that if the government’s shoring up of the U.S. banking system succeeds, “… we’ll see the recession coming to an end probably this year.”
That doesn’t mean that U.S. business will return to its pre-crash ways. The hard lessons learned during the past year are expected to have a lasting impact on U.S. businesses. Savvy business owners are expected to continue leaner, more-efficient practices adopted during the recession to protect themselves against a still uncertain future. But we’re not out of the woods yet. Consolidation is playing a major role in weeding out weak and under capitalized players and broadening the scope of strong companies. Consolidation mergers could play a significant role in strengthening U.S. industry across the board.
In a March 16, 2009 article posted on SupplyChainDigest online, Materials Handling Editor Cliff Holste says, “SCDigest predicts the automated materials handling industry will soon see rapid consolidation …” Holste reports that a merger between two of the conveyor systems industry’s biggest suppliers is imminent, barring any last minute glitch. It could be the first of many. Holste and SCDigest believe the material handling industry is ripe for consolidation. Contributing factors include:
- Over-abundance of suppliers in a shrinking market. Even before the recession, Holste reminds us that many industry watchers didn’t believe there was enough business to support all the players profitably. The recession just accelerated what might have been a slower winnowing of the ranks.
- Consolidation allows companies to increase their product and customer scope while cutting expenses, primarily in personnel cuts across the board. Mergers “can goose profits of the combined companies,” Holste notes, while nearly halving expenses.
- Well capitalized companies are buying out poorly capitalized ones resulting in stronger firms better able to withstand the economy’s financial roller coaster and provide long-term products and services to their clients.