Merger and acquisition activity is often looked at as one of the many economic indicators of a healthy economy. Unfortunately for us as investors, M&A activity isn't as cut-and-dried as the pundits make it appear. M&A activity is occasionally necessitated not out of strength, but as a response to a decaying business model.
Such is the case right now with two business sectors struggling mightily to split a shrinking pie among far too many mouths. Below, I've outlined two sectors that would likely benefit from consolidation. While this may not mean a win-win for stockholders of these hypothetical scenarios, it could at least mean the survival of the sector as we know it.
Small-business owners simply aren't spending like they were five years ago, and that has sucked the life force directly out of the office supply sector. OfficeMax
With that being said, it seems logical for OfficeMax and Office Depot -- once bitter rivals -- to consider merging. The cost savings would be the primary benefit. Each company could spend significantly less on advertising and could close underperforming stores, adding a relatively quick boost to an already thin gross margin. While this might not be enough to save these two companies, it seems to me to be the only hope each company has to compete against Staples.
Baby boomer retail
OK, so you won't exactly find baby boomer retail listed as an "official" sector, but there is considerable room for improvement in this unofficial entry -- specifically for retailers catering to baby boomer women.
Things are going from bad to worse for female-focused retailers Talbots
The only plausible solution I see is for the two cash-rich rivals in this sector, Chico's
While these hypothetical mergers and acquisitions may never occur, it'd be foolish (with a small "f") to assume that struggling companies like OfficeMax, Office Depot, Coldwater Creek, and Talbots are going to turn things around on their own. Each company has been given ample time to change its image and it simply hasn't taken hold. Whether or not a money-making opportunity exists for shareholders is still up for grabs, but these two sectors definitely bear watching.
What sectors do you feel are ripe for consolidation? State your case below and consider adding these companies to your personalized watchlist to keep up on the latest news from their respective sectors.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong Motley Fool newsletter services have recommended buying shares of Staples, and creating a short position in Office Depot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that always puts its readers first.