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So What Other Industries Are Left To Consolidate

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March 03, 2008 – Comments (8)

I was musing about some of the great stock market stories and realized there was a theme that kept reappearing, like the leitmotifs in a well done file score.

Some of the great stocks have happened when a fragmented industry with a lot of small mom & pop style players had one large player take over. Some of the examples are Starbucks in coffee houses, McDonalds in hamburger stands, Alderwoods in the funeral industry, GM and Ford in the auto industry (they've fallen on hard times now, but those were amazing stocks for several generations.) Some times it is a consolidation as small players are bought out, other times the small players get shoved out. If you got in before the company got to be huge you did very well.

So what industries seem like they might have potential for this? The obvious one is dentistry. Most dentist's offices have one or maybe two dentists. They have their own booking and insurance personel, several hygenists and are probably run as either sole proprietorships or LLCs. There seems to be some room for much greater efficiency in a consolidation here, but you have the problem that people like to have their own provider and not get get whoever is the next one with a free slot. Maybe a company that would do the booking, insurance, and front office stuff, but let the dentist still have a "practice" with patients seeing the same provider so they get the warm and fuzzy.

The dental supplies industry also seems to be fragmented with a bunch of small manufacturers, many of them privately held. 3M seems to be one of the few large suppliers as they seem to make most of the castants, sealants and various other "goo" used in the industry. (And 3M is very firmly in my watch list.)

The housing contruction industry is another one with mostly small local players, but it is having a rough time of it recently and it may be a year or two before it has an upturn. (Although a bunch of large and small players may go under and this may do an effective consolidation as there may not be many standing after this.)

So, any ideas for profitable but fragmented industries that could have a killer big box company become the big dog on the porch? 

8 Comments – Post Your Own

#1) On March 03, 2008 at 11:14 AM, abitare (35.58) wrote:

Not a bad call on Dentistry. Two dentistry stocks: adpi, bdms

Airline consolidation is coming also.  

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#2) On March 03, 2008 at 2:03 PM, YoungMoneyJB (95.66) wrote:

How about recycling! Transition to greener policies will likely put more spotlight on recycling. Its a bunch of mom and pops, which leads to all sorts of inefficiencies. Metallico (MEA) is an iron recycling plant that is in prime position to take part in consolidation. As a bonus, they resell metals! So, they are part of recycling AND infrastructure. I really like your dentistry idea.

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#3) On March 03, 2008 at 6:22 PM, StockSpreadsheet (71.58) wrote:

Carmax could consolidate a lot of the used car lots.

Nucor might buy up some of the various scrap metal dealers/junkyards.  Either them or Steel Dynamics already use scrap yards as the source of their main feedstock, so this would be a continuation of current policy for one/both of them.

I think Waste Management also does recycling, so they might be a consolidator.

I know that Financial Advisor offices are often independently owned and operated, but I don't know of anyone that could come in and consolidate them all, (at least, not somebody that isn't already very big, (such as Merrill Lynch), that people are already currently avoiding due to fees or conflicts of interest).

Craig 

 

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#4) On March 04, 2008 at 4:14 PM, Tastylunch (29.29) wrote:

I always wondered why there isn't any major national gun stores and/or pawn shops. Eventually I think some company will figure a way to make one  those concepts work on a lareg scale and if so said company will probably be able to consolidate the small pieces rather quickly.

Dry cleaners and laundromats might be interesting too, if a company can figure out how to take those national. 

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#5) On March 06, 2008 at 1:29 AM, masokotanga (99.65) wrote:

I own a couple of consolidation plays in real life. My all-time favorite? Strip clubs!!! Check out RICK or VCGH. I own RICK and feel it is best of breed.

CFSG could become a consolidation play in the Chinese fire protection industry when they start doing some M&A's, maybe even this year.

HOGS is rapidly expanding and gaining market share in the extremely fragmented Chinese pork market.

 

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#6) On March 07, 2008 at 1:43 PM, phi16 (30.01) wrote:

It's an interesting idea - dentistry.  To make it work, the agregator should take advantage of size not to acheive economies of scale, though those may be significant.  But rather to be able to sell something individuals cannot.  Offer some of the new techniques and products as fashion, life style and health products (not to mention convenience and affordability).  Cosmetic dentisry (clear braces), painless (Water lasers), fashion (whitening, implants) are all products people would want if they knew about them and they were presented as mainstream and affordable.  Like Pearle Vision such an approach could work though I haven't seen it out there yet.  The difficulty might be in trying to make the practice fungible, that a patient (customer) could go to any of the offices and expect the same level of care and attention in each.  Pearle Vision, Starbucks and McDonald's do that.  

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#7) On March 18, 2008 at 7:59 AM, Gemini846 (48.98) wrote:

Pawn Shops.. thats a pretty good idea. Honestly if you can get a national chain of check cashing places catering to the middle class none the less (Amscot) surely you could do it with pawn shops.

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#8) On March 18, 2008 at 8:28 PM, abitare (35.58) wrote:

Replying to your post: 

Protective tariffs are what caused the great depression via the Smoot Hawley act. I don't think we want to go there.

As far as getting out of debt, that would be a wonderful thing for this country to do, but it would require maturity that we sadly lack.

Another view: 

Austrian theorists who wrote about the Depression include Hayek and Murray Rothbard, who wrote "America's Great Depression". In their view, the key cause of the Depression was the expansion of the money supply in the 1920s that lead to an unsustainable credit driven boom. In their view, the Federal Reserve, which was created in 1913, shoulders much of the blame.

In fact, Hayek, writing for the Austrian Institute of Economic Research Report in February 1929 [13] predicted the economic downturn, stating that "the boom will collapse within the next few months."

Ludwig von Mises also expected this financial catastrophe, and is quoted as stating "A great crash is coming, and I don't want my name in any way connected with it" [14] when he turned down an important job at the Kreditanstalt Bank in early 1929.

One reason for the monetary inflation was to help Great Britain, which, in the 1920s, was struggling with its plans to return to the gold standard at pre-war (World War I) parity.

In the Austrian view it was this inflation of the money supply that led to an unsustainable boom in both asset prices (stocks and bonds) and in capital goods. By the time the Fed belatedly tightened in 1928, it was far too late and, in the Austrian view, a depression was inevitable.

The artificial interference in the economy was a disaster prior to the Depression, and government efforts to prop up the economy after the crash of 1929 only made things worse. Report this comment

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