Corporate Finance

Industry Lifecycle Phase and M&A

M&A activity can vary depending on the acquirer and/or target’s phase in the industry lifecycle.

  • Pioneering Phase: start-up founders may opt to “cash out” of their promising ventures by selling to larger companies that are seeking growth opportunities.  Horizontal and conglomerate mergers.
  • Accelerating Growth Phase: highly profitable and fast growing companies in new industries may sell themselves to more established companies in order to access capital for business expansion.  Horizontal and conglomerate mergers.
  • Mature Growth Phase: larger companies with slowing growth rates may look for targets with value potential or targets that can facilitate economies of scale.  Horizontal and vertical mergers.
  • Industry Maturity Phase: an acquiring company is now growing around the same pace as that of the economy; it will look for targets that can increase economies of scale or invest in small growing concerns that provide return opportunities for shareholders.  Horizontal mergers.
  • Decline Phase: overall industry is shrinking; an acquirer may look for synergies, to buy profitability of younger firms, or to simply survive.  Horizontal, conglomerate, and/or vertical mergers.
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