Jan 4, 2017 by Edward L. Blach, DVM, MS, MBA
All around us we see consolidation. It is a fact of life, and one that impacts all of us.
What is consolidation, and how does it impact us?
Consolidation is what results when Comcast purchases NBC, Universal, Dreamworks, and others. Or when Disney buys ESPN, ABC, and many more. Or when ATT purchased DirectTV. It's Google purchasing many small entrepreneurial companies and offering their products and services to their larger customer base.
Companies, especially public companies must grow, or they don't survive. Shareholders demand a return on their investment, and growth is what typically ensures those returns. Consolidation is intended to help a company in several ways. One, adding a complementary product or service to what you already sell to existing customers is one of the most effective drivers of growth for any company. If you have a loyal customer base, why not identify new products and services that they want? Remember, your greatest opportunities for growth are your existing customers, not new customers. This is what drives consolidation.
In veterinary medicine, we see consolidation when Henry Schein Animal Health purchased SmartPak, Avimark, Impromed, and other products and services in the animal health industry. Consolidation is what drives VCA to purchase hundreds of veterinary practices. They developed a successful model for operating veterinary practices profitably, and in the process, other companies they own, such as Antech Diagnostics are able to increase their sales by providing their services to the newly acquired practices. This growth satisfies VCA shareholders and is intended to grow the value of the company.
This consolidation can be challenging to small businesses if they don't position themselves to benefit from it. Consolidation benefits small businesses by allowing you to negotiate supplier agreements with one company on more products and services. If you're willing to commit your business to a specific supplier on a larger offering, they don't have to spend as much money acquiring new customers, so they can negotiate better rates with you. They can focus on customer service and helping you grow. If they have to spend more of their budget trying to gain your business, then, you will pay more for their products and services.
Consolidation also impacts you in other ways. Consolidation is a sign that the sources of financial capital have recognized your industry as being a worthwhile investment. This is good. When outside sources of capital (those from outside the industry) are willing to risk their money in your industry, it provides a more dynamic business environment, in which there is more competition to own the assets (veterinary practices). This increased competition helps improve the value of veterinary practices, which in turn drives up compensation and the available opportunities for all people who work in the industry.
Consolidation impacts all of us. Study it. Understand it. It creates many opportunities.