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6 FEDA News & Views Industry Insights Musings from the Flying Metal Tube—Again Gary N. Licht - President EQUIPEX LLC garyl@equipex.com W hile traveling by air, I prefer to avoid Wi-Fi, as it's a wonderful time without email, the Internet and the cell phone to actually think at a macro level. Perhaps the high alti- tude assists in this refl ection process. Tim Schrack's Industry Insights column in the September/October issue, "There's Still Opportunities for Differentiation– Even in a Maturing Market," should stimu- late a high level of thought by dealers and manufacturers. There has to be some trepidation regarding all of the consolidation going on in the indus- try at various levels. Manufacturers and dealers—and others— have speculated for more than 30 years about the likelihood of consolidation in our industry. Too many similarly manufactured products and too many points of distribution have dampened prof- its. When we study what has occurred over the past 20 years in other distribution industries that embody similar characteristics, we fi nd that most have already undergone the consolidation process. Our dealer and manu- facturing communities share some aspects of this current trend line, and differ in other ways. Most of the major publications in our industry have already highlighted the signifi cant mergers and acquisitions that have occurred among dealers and manufacturers over the past 18 months. Indeed, the consolidation process has begun in earnest and there are many forces that have accelerated the trends in which we are immersed. First, suc- cessful dealers have access to inexpen- sive sources of funds today, effectively reducing the long-term costs of an acqui- sition. Secondly, effi ciency in all process- es demands an ongoing and signifi cant investment in technology by dealers to grow their businesses. Thirdly, with the proliferation and transparency of Internet pricing, dealers must be incred- ibly profi cient in offering the necessary services and goods, while generating acceptable profi ts. Next, while buying groups have spread rampantly over the past 30 years, the larg- est dealers assert that they are buying much better than their small- er peers in an indus- try where margins are at a historically low level. Finally, and per- haps most importantly, there is a signifi cant generational change occurring at the deal- er level. Many fi rms are still owned and operated by families. In some cases, orderly transition has been planned and family successors groomed, but that's not the case in many instances and critical decisions to sell, merge or liquidate must occur in the short term (as in a few years, not decades). Many of these trends favor the larg- est dealers. Size matters, as it creates economies to scale in all facets of opera- continued on page 20 When we study what has occurred over the past 20 years in other distribution industries that embody similar characteristics, we find that most have already undergone the consolidation process. Our dealer and manufacturing communities share some aspects of this current trend line, and differ in other ways.