Industry Consolidation through M&A

Over the past year M&A has been booming, largely due to favorable current conditions, in particular low interest rates. M&A data room provider Intralinks is predicting an 11% percent increase in M&A volume Year-over-Year. Even with a potential increase in interest rates, M&A activity seems likely to continue at these high levels for the near future.

Perhaps an under appreciated story line in all the M&A activity is the attempted consolidation in numerous industries. In healthcare, CVS acquired Target's pharmacy and health center business. In insurance, Anthem placed a bid to acquire Cigna. Expedia just received anti-trust clearance for a $1.3B takeover of Orbitz. Now in a potential merger nicknamed "Megabrew," Annheuser Busch InBev and SABMiller would form a dominant force in the world beer market.

In healthcare this is relatively unsurprising. Increased regulation and legislation makes it harder for smaller firms to compete. Ultimately it seems inevitable that CVS and Walgreens will come to dominate their market even more than they already do. Nevertheless, in other industries this situation should be closely monitored. As more conglomerates form the likelihood of new players in these industries diminishes greatly, providing less innovation and alternatives for consumers. Everyone loves a big year in M&A, but we should be wary of the barriers to entry posed by increased consolidation.

Ari Kaissar