What Are the Industries Most Likely to See Mergers and Acquisitions (M&As)?

Mergers and acquisitions (M&As) are most common in the healthcare, technology, financial services, and retail sectors. In health care and technology, many small and medium-sized companies find it challenging to compete in the marketplace with the handful of behemoths that usually control the industry. These firms often find it more lucrative to be acquired by one of the giants for a huge payday. Economic turmoil throughout the 21st century has precipitated M&A activity in the financial services industry, in which firms that weathered the storm have rescued struggling competitors by buying them out. Lastly, the cyclical nature of the retail sector frequently presents cash flow difficulties for businesses, making them ripe for acquisition by more solvent competitors.

Key Takeaways:

  • Mergers and acquisitions (M&As) are common in the healthcare, technology, financial services, and retail sectors.
  • In these fiercely competitive industries, smaller entities often join forces with larger players because they find it hard to compete.
  • M&A activity may heat up when economic conditions are poor because consumers spend less and companies, such as those in retail, find it hard to stay afloat with less cash flow.

Understanding the Merger & Acquisitions (M&A) Industries

Company size has a lot to do with whether a company can compete in an industry. It is often the case that the big players in an industry subsume the smaller firms.

Healthcare

A rapidly changing landscape in the healthcare industry, with government legislation leading the way, has posed difficulties for small and medium companies that lack the capital to keep up with these changes. Moreover, as healthcare costs continue to skyrocket, despite efforts from the government to reign them in, many of these companies find it nearly impossible to compete in the market and resort to being absorbed by larger, better-capitalized companies.

Technology

The technology industry moves so rapidly that, like health care, it takes a massive presence and huge financial backing for companies to remain relevant. When a new idea or product hits the scene, industry giants such as Google, Facebook, and Microsoft have the money to perfect it and bring it to market. Many smaller companies, instead of unsuccessfully trying to compete, join forces with the big industry players.

Throughout the 21st century, particularly during the late 2000s, M&A activity has been constant in the financial services industry. Many companies that were unable to withstand the downturn brought on by the financial crisis of 2007 to 2008 were acquired by competitors. In some cases, the government oversaw and assisting in the process. As the industry and the economy as a whole have stabilized in the 2010s, M&A by necessity have decreased. However, the 15 largest companies in the industry have a market capitalization of over $20 billion as of 2015, giving them considerable leverage to acquire regional banks and trusts.

Retail

The final market sector in which M&As are common is retail. This sector is highly cyclical. General economic conditions maintain a high level of influence on how well retail companies perform. When times are good, consumers shop more, and these firms do well. During hard times, however, retail suffers as people count pennies and limit their spending to necessities. In the retail sector, much of the M&A activity takes place during these downturns. Companies able to maintain good cash flow when the economy dips find themselves in a position to acquire competitors unable to stay afloat when they experience reduced revenues.