Acquisition After Acquisition, But What About Competition?

Another acquisition was announced yesterday afternoon. Stevenswood, the trade counter business rapidly expanding beyond it’s base in Scotland, has taken over Sameday Trade Frames for an undisclosed sum. You can read about that story and my thoughts on it here.

There has been some serious consolidation of the market in recent years. And with good reason. Hit by a major recession in just about a decade ago, and a client base that has become more refined and educated, our industry was left with a few too many companies in all parts of our sector.

Some have gone bust, many have been bought up by bigger regional or national companies. But acquisitions can only go on for so long. And the nature of many of these acquisitions have been large, and have taken out many competitors in the process and brought them under one very big roof. There appears to be no end in sight, so what happens to competition?

A potential lack of competition?

There are one or two voices pointing out something that is becoming a bit more obvious with each buyout, and that as each acquisition takes place, it removes a rival and therefore competition. Fine when there were far too many fabricators and installers out there to service the amount of business. But we have spent a long time adjusting to a new trading reality. One that is far more bespoke, focused on quality and customer service. I’d say we’re a much smaller industry now in terms of individual companies than even just a few years ago.

The larger businesses in our industry have since been able to take advantage of the market. It’s a buyers market right now. Big fabricators and syscos, backed by either their own deep pockets, investment funds or wealthy private backers have been able to snap up key targets in a bid to bolster their own portfolios and gain instant access to new parts of the market. It’s a great way to build a new industry super-group. It’s also a great way to squeeze out your competitors. Just look at the reaction to Amazon buying US grocers Whole-Foods. That $13.7bn deal sent shock waves around the world and wiped out $32bn in value of the shares of the competitors.

Competition then has to be brought into question. As the groups in the window industry continue to get bigger with each acquisition, the range of competition is reduced. Just look at the number of start-ups and established businesses the likes of Amazon, Facebook, Google, Samsung, Apple and Microsoft in recent years. These guys are pretty much the tech industry in most parts of the world. Competition is pretty much what these guys do. Six companies. That is all. Is the window industry headed in a similar direction? Are we going to end up with half a dozen or so organisations owning some of the biggest companies we have? It could well be.

That path might not be so easy to travel however. There is a little Government thing called the Competition Commission, the body set up to have a nosey around mergers and acquisitions that threaten to reduce competition and choice for consumers. With each acquisition our industry sees, I think we edge a little bit closer to attracting the attention of the Competition Commission. Are there already companies out there holding fire for fear of being knocked back on a potential deal?

We still need competition

Consolidation via acquisitions was needed in this industry for quite a while, don’t get me wrong on this. We were well oversupplied with fabricators and installers in comparison to the business out there.

But we don’t want to be going the other way, like the tech industry has done, and for the industry to merge into a cartel of half a dozen or so super-groups that end up dictating prices, products, supply chains and so on. We need some degree of competition.

Competition is a good thing. It provides flexibility for installers and indeed home owners. The more competition the more choice, which means the better the chance a home owner gets to find a product that can be suited to their needs. Good for the installer as well as they a free to move around in the market to source different products or find new suppliers to help them aid their own business as they see fit.

Competition is good for fairness too. You only need to look at the glass sector to see how damaging the lack of choice is. Price increases for example, when one big glass company puts their prices up, the rest follow suit usually within weeks. The same is now already happening in the systems company part of our industry. Installers at the sharp end get no protection from this. Take away even more choice and they get less protection, which only harms them as they don’t get that flexibility to move around in the market which could be the very thing that keeps them afloat.

On the product front, I don’t think that super-groups aren’t all bad. Innovation will still occur at break-neck speeds in a bid to out-innovate the other groups out there. Good for installers and home owners. And on a personnel front, they get to build teams of people cherry pricked from across the group of companies to make sure that all areas of business run smoothly, efficiently and profitably. At least that’s the theory anyway.

But we have to be careful out industry doesn’t turn into a sector dictates by a few all powerful mega-groups. The mega-groups won’t mind of course, but I think installers might have one or two concerns if we do end up in such a place.