Offense or Defense? There's a Difference.

The roll-up of the industry is continuing. I was recently interviewed by a business author who is looking back on the era of junk financing and mergers & acquisitions in the 1990s. He asked me about some of the efforts in the printing industry from that time and how those companies are faring now. Some, after great pains and reorganizations, are doing much better in recent years. Others are burdened by those debts, limiting the freedom of managerial actions in those companies, with almost every move being constrained by the borrowing undertaken by other executives many years ago. Some never survived. When companies are paying debt service for the privilege of existing rather than servicing debt on capital equipment that creates profits, they will continue to have problems.

I see today's industry consolidation as defensive, while the mid-to-late 1990s consolidations were offensive. By defensive, I mean that the consolidations are encouraged by a market that is not growing while the costs of being in the market are increasing. Therefore, the elimination of duplicate costs and marginal operations between two firms is a driving factor. I don't mean “defensive” in any derogatory way, because well-executed consolidations can result in superior blended companies.