European Consolidation Board for Foreign Industry (ECBFI)



Everyone knows that most new industries are fragmented and consolidate as they mature. But how does that work exactly? Our long-term analysis of mergers around the globe has found that most industries progress predictably through a clear consolidation life cycle—and that companies can plot with some precision where they fall in the cycle.

From our study of 1,345 large mergers completed over the past 13 years, we have concluded that, once an industry forms or is deregulated, it will move through four stages of consolidation (see the exhibit “Industry Consolidation Life Cycle”). Today, we predict, an industry will take on average 25 years to progress through all four stages; in the past it took somewhat longer, and in the future we expect it to be even quicker. But, our research suggests, every company in every industry will go through these four stages—or disappear. Thus, an understanding of where in the cycle an industry is should be the cornerstone of a company’s long-term strategic plan.

Stage 1: Opening. The first stage generally begins with a single start-up or with a monopoly just emerging from a newly deregulated or privatized industry. But this 100% industry concentration quickly drops off. Soon, the combined market share of the three largest companies drops to between 30% and 10%, as competitors quickly arise to create the frontier of industry consolidation. Newly deregulated or privatized industries throughout the world, such as energy, telecommunications, railroads, banking, and insurance, currently occupy this space. Start-ups in new fields such as biotechnology and on-line retailing also reside here, along with spin-offs that come from completely consolidated industries—as sports drinks and bottled water did from the soft-drink industry.

Companies in stage 1 industries should aggressively defend their first-mover advantage by building scale, creating a global footprint, and establishing barriers to entry by protecting proprietary technology or ideas. Stage 1 companies should focus more on revenue than profit, working to amass market share. And they should begin perfecting their acquisition skills, as these will be key to success in the next two stages of consolidation.

Stage 2: Scale. This stage is all about building scale. Major players begin to emerge, buying up competitors and forming empires. The top three players in a stage 2 industry will own 15% to 45%of their market, as the industry consolidates rapidly.

Typical stage 2 industries include airlines, hotel chains, automotive suppliers, banks, and pharmaceuticals. Pfizer, in its recent acquisition of Pharmacia and Warner-Lambert, is a textbook example of a stage 2 company successfully positioning itself for the later rounds of consolidation that will yield the industry’s giants.

Because of the large number of acquisitions occurring in this stage, companies must hone their merger-integration skills. These include learning how to carefully protect their core culture as they absorb new companies and focusing on retaining the best employees of acquired companies. Building a scalable IT platform is also crucial to the rapid integration of acquired firms. Companies jockeying to reach stage 3 must be among the first players in the industry to capture their major competitors in the most important markets and should expand their global reach.

Stage 3: Focus. After the ferocious consolidation of stage 2, stage 3 companies focus on expanding their core business and continuing to aggressively outgrow the competition. The top three industry players will now control between 35% and 70% of the market. By this time, there are still generally five to 12 major players.


The ECBFI work in partnership with Oracle to offer Financial Services, Legal and Accountants Firms Insight:

The ECBFI Give Clients An In-depth and Overview of
  • Comprehensive and extensible risk scoring function
  • Continuous customer monitoring through life cycle risk scoring
  • Real-time and batch interfaces to integrate with other systems
  • Advanced enhanced due diligence to enable quality investigations
  • Extensible data model, reducing implementation time and costs
The Benefits to ECBFI Customers are working with a world leader to
  • Meet local and global AML/CFT regulatory requirements
  • Reduce the cost of compliance
  • Employ efficient due diligence processes
  • Improve account and customer on-boarding processes
  • Achieve end-to-end compliance