Industry Consolidation is Inevitable, Predictable and Manageable: Book by A.T. Kearney Consultants

�Winning the Merger Endgame� uncovers hidden patterns behind consolidation chaos

PLANO TEXAS (December 10, 2002) Merger activity in any industry follows a predictable pattern that plays out over approximately 25 years and, once understood, can be used to strengthen corporate strategy and drive merger integration efforts, according to a new book written by consultants at global management consulting firm A.T. Kearney, a subsidiary of global services leader EDS.

Winning the Merger Endgame: A Playbook for Profiting from Industry Consolidation, is based on an analysis of the consolidation strategies of 25,000 companies across 24 industries worldwide, focusing on 1,345 large mergers completed by 945 companies from 1988 to 2001. Authors Graeme K. Deans, Fritz Kroeger and Stefan Zeisel, all A.T. Kearney consultants, used this analysis to develop the Merger Endgames Theory, which states that all industries move through a distinct four-stage consolidation pattern spanning approximately 25 years. Understanding where an industry lies on the s-shaped Endgames consolidation curve can help managers of companies in that industry craft strategic options to drive their company through the inevitable consolidation of its industry.

According to the authors, different industries consolidate at various rates, with each going through all of the four stages:

Stage 1�Opening. There are many players in an industry and little or no market concentration. Industries in this phase are new, recently created through deregulation, start-ups or spin-offs. Current Stage 1 industries include energy, telecommunications, biotechnology and online retailing.

Stage 2�Scale. Size begins to matter. Major players begin to emerge and take the lead in consolidation. Consolidation rates (measured by market share of the top three companies in an industry) can be as high as 45 percent. Hotel chains, airlines, automotive suppliers, banks and pharmaceuticals are examples of Stage 2 industries.

Stage 3�Focus. Successful players extend their core businesses, exchange or eliminate secondary units, and continue to grow faster than their competition as consolidation rates approach 65 percent. Steel producers, automakers, ship builders, distillers and magazine publishers are Stage 3 industries.

Stage 4�Balance and Alliance. Industries are dominated by a few players with consolidation rates as high as 90 percent and companies seek alliances as ways to grow in mature industries. Tobacco, soft drinks and aerospace and defense are Stage 4 industries.

�Current thinking argues that the M&A boom has passed and organic growth rather than growth through acquisitions will be the key to long-term success,� said co-author Graeme Deans, A.T. Kearney vice president. �Our research indicates executives aren�t at liberty to choose between the two. Industries will consolidate and management teams must be thinking about potential acquisitions regardless of prevailing market conditions.�

Five key themes emerge from the authors� analysis:

  1. All industries consolidate and follow a similar course
  2. Consolidation trends, merger actions and bankruptcies can be predicted
  3. The Endgames curve can be used as a tool to strengthen consolidation strategies and facilitate merger integration
  4. Every major strategic and operational move should be evaluated with regard to its Endgames impact
  5. Endgames positioning offers a guide for portfolio optimization

�The patterns that emerged from the research make it possible to determine where any given industry lies on the path to consolidation, what strategies executives need to consider based on the stage their industry is in and what operational changes must be made to win the game of consolidation,� said Fritz Kroeger, co-author and A.T. Kearney vice president.

Published by McGraw-Hill, Winning the Merger Endgame is available at booksellers now.

A.T. KEARNEY

A.T. Kearney (www.atkearney.com) is one of the world’s largest and fastest-growing management consulting firms. With a global presence that includes more than 60 offices and 35 countries, spanning major and emerging markets, A.T. Kearney provides strategic, operational, organizational and technology consulting and executive search services to the world’s leading companies. A.T. Kearney is the high-value management consulting subsidiary of global services leader EDS.

EDS

EDS, the leading global services company, provides strategy, implementation, business transformation and operational solutions for clients managing the business and technology complexities of the digital economy. EDS brings together the world’s best technologies to address critical client business imperatives. It helps clients eliminate boundaries, collaborate in new ways, establish their customers’ trust and continuously seek improvement. EDS, with its management consulting subsidiary, A.T. Kearney, serves the world’s leading companies and governments in 60 countries. EDS reported revenues of $21.5 billion in 2001. The company’s stock is traded on the New York Stock Exchange (NYSE: EDS) and the London Stock Exchange. Learn more at www.eds.com.