Appendix C
INDUSTRY CONSOLIDATION TRENDS
Consolidation through mergers and acquisitions is a major trend in
many industries. A central goal of most mergers has been to improve
investment returns through cost cutting, productivity gains, and
economies of scale (Mulligan, 1999). In this appendix, we offer
summaries of consolidation trends for several key industries in
which the DoD purchases goods and services, as well as figures
summarizing where consolidation is and is not occurring.
THIRD-PARTY LOGISTICS
As major shippers such as Nike are pushing their vendors into expanding their menu of services, rather than turning to an unfamiliar
supplier, large logistics services firms are buying small firms and/or
merging with other firms to expand the scope of their services and
geographical presence. For example, Ryder Integrated Logistics, Inc.
is expanding through acquisitions and alliances. It recently bought
the Brazilian freight forwarder Translor. In addition, APL Ltd. has
used acquisitions to help it gradually extend its geographic range
while adding capabilities such as intermodal transportation, contract
logistics, information systems, and freight consolidation to become a
worldwide logistics supplier (Bowman, 1998). Also, in the last few
years, FDX, the parent of express package carrier FedEx, purchased
Caliber Logistics, a third-party logistics services provider, and RPS, a
ground package delivery service, to expand the scope of the services
it can provide.
89
90
Federal Contract Bundling
FACILITY MANAGEMENT
All five of the top commercial real estate services firms that provide
facility management services have been through a level of consolidation in recent years. For example, Compass was bought by LaSalle
Partners, which subsequently merged with Jones Lang Wooten, a European facility management services provider, to become Jones Lang
LaSalle, a much larger company with more products and services. CB
Commercial bought Koll to become CB Koll; then CB Koll purchased
the European firm, Richard Ellis, to become CB Richard Ellis, a major
competitor of Jones Lang LaSalle.
AUTOMOTIVE
Automotive parts suppliers have consolidated from 30,000 in 1988 to
8000 in 1999 and are projected to consolidate further to 2000 by 2008
(Kiplinger, August 1999). The biggest automotive-component suppliers are likely to expand at rates of 20 percent to 30 percent a year
over the next five years, largely reflecting acquisitions (Simison,
1999).1 Further, “[i]nvestment bankers and venture capitalists are
buying car dealerships to consolidate them into publicly held retail
chains like Wal-Mart, with all its efficiencies and cookie-cutter customer service programs” (Stern, 1995).
OTHER INDUSTRIES
Figures C.1–C.3 illustrate these trends in the broader marketplace.
Figure C.1 shows the U.S. industries with the largest dollar value of
announced merger deals in 1999 (through August 12). Figure C.2
demonstrates the changing market share of the top five companies in
five major industries from 1988 to 1998. Figure C.3 gives the marketshare changes from 1988 to 1998 for some key U.S. industries in
which market share of the top five companies has stayed fairly flat or
has declined.
______________
1 The intent of acquisitions among automotive suppliers was to grow so that they
could make viable investments in information systems and in research and development to meet the needs of the large auto manufacturers. See Flannigan (1999).
Industry Consolidation Trends
91
RAND MR1224-C.1
Telecommunications
Radio/TV
Business services
Utilities
Banks
Oil/gas refining
Insurance
Communications equipment
31
31
Software
Machinery
Chemicals
Drugs
Instrumentation
Electronic equipment
Brokerages
29
26
26
24
23
18
18
172
126
63
59
59
46
0
20
40 60 80 100 120 140 160 180 200
Dollar value of 1999 deals, in billions
SOURCE: Thomas Financial Securities Data (Mulligan, 1999).
Figure C.1—Industries Experiencing Heavy Merger Activity
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Federal Contract Bundling
RAND MR1224-C.2
59
Railroads
76
46
Department stores
75
30
Cable TV
57
20
Major commercial banks
45
1988
1998
15
Oil field services
37
0
20
40
60
80
Market share of top five companies, in percent
100
SOURCE: Mulligan (1999).
NOTE: Market share data reflect North American market except in case of oil
field services, which is global.
Figure C.2—Industries with Growing Concentration
Industry Consolidation Trends
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RAND MR1224-C.3
Brewing
Chemicals
77
Biotechnology
89
87
85
100
73
43
44
Restaurants
35
34
Paper/lumber
23
25
Newspapers
Integrated oil
18
Oil/gas exploration
18
Electric utilities
17
16
23
23
0
10
1988
1998
20
30
40
50
60
70
80
90
Market share of top five companies, in percent
SOURCE: Donaldson, Lufkin & Jenrette in Mulligan (1999).
Figure C.3—Industries in Which Concentration Is Not Surging
100