What Consolidation Means for the Middle Market

Last week, Sysco announced it would buy rival US Foods for nearly $3.5 billion. Sysco is already a huge player in the food industry with customers ranging from the US military to schools to five-star restaurants. This deal brings together the two largest food distributors in the US, increasing Sysco’s share of the food distribution market from 18 percent to 25 percent. This acquisition is the latest in a trend of consolidation that we’re seeing in many industries. I call it the dumbbell theory.

What I see is that the number of middle market companies—I’m talking about companies roughly $100 million to $500 million—has been progressively shrinking while the number of large players and small mom and pops increases.  As the Sysco-US Foods deal proves, there’s no shortage of healthy and growing multinational monsters.

The dumbbell theory

The number of middle market companies shrinks while the number of large players and small mom and pops grows.

In the middle, we’re seeing a silent squeeze. For a multitude of reasons—to do with technology, globalization and the structure of the labor markets—it’s become more difficult to cruise along in that middle ground between “small but dynamic” and “huge but invincible.”

While the dumbbell theory may ring true, this doesn’t mean middle market players should hang back from M&A. Fortune favors the brave, and success in business tends to favor the contrarian. The very fact that so many companies are gun-shy about external growth creates an environment of opportunity.

What matters is your underlying strategy. So long as you have a single, clear purpose to guide your expansion, this could be the very best time to partner with another company. (And remember, acquisition is only one of many ways to do this.) Let others relive their nightmares of 2008 if that’s what they choose. In reality, we’re coming up to 2014—and the field is wide open for you to make it your best year ever.

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