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Brian Friedman: Is the Mobility Industry consolidating?

Every morning when I check my emails, I seem to hear news of yet another merger or acquisition in the relocation space. So what’s going on? Why is there so much merger activity and, more importantly, where is this all going to end up?

(originally published on LinkedIn: https://www.linkedin.com/pulse/mobility-industry-consolidating-brian-friedman)

In recent weeks, we have seen Polaris being acquired up by Move Guides (now known as Topia). We have also seem Weichert acquire TheMIGroup and Lexicon acquire Sterling. And just the other day, it was announced that SIRVA had been sold to private equity house, Madison Dearborn. There have also been smaller acquisitions such as Crown acquiring Time Relocation, Total Rewards Group being absorbed by Arthur J Gallagher and K2 acquiring Harbour HR.

Industry consolidation does seem to come in waves. A few years back we saw Cartus acquire Primacy, BGRS acquire Pricoa, Suddath acquire Graebel Van Lines and Unigroup acquire Sterling but the current levels of corporate activity are unprecedented.

So the big questions are why is all this activity happening now and what does it tell us about the fundamental economics of the global mobility industry.

The starting point is to understand a couple of strategic mega-trends that are affecting all industries and where the relocation industry is certainly no exception. The first is that customers are becoming ever more cost conscious and increasingly savvy at driving the best value deals from their suppliers. Much of this is down to the increasingly prominent role of procurement and the commoditization of relocation services.

The stark reality is that in any industry where the basic service is being commoditized, profit margins fall and the weaker players end up having to run for cover. Consolidation is inevitable as the stronger players swallow up the weak in order to build market share to help spread their costs over an enhanced revenue base. We have seen similar waves of consolidation in the banking, auto, pharma and accounting sectors and there is no reason why the relocation sector should be any different. In most industries, the end result seems to be an industry dominated by no more than 4 or 5 major players and then a long tail of primarily niche providers.

But there is another mega-trend that is impacting the current wave of consolidation and this is not just leading to consolidation but to industry-wide disruption. Technology is now mission critical to any relocation management company and as everyone knows technology development doesn’t come cheap.

Relocation companies are thus suffering a double whammy. Prices are being driven down through competition and procurement while at the same time the costs of doing business are being driven up by the expectation of ever more sophisticated technology platforms. No wonder that many relocation companies are looking to merge as a solution to all their problems.

However, even this double whammy isn’t the end of the matter. What we are seeing is not just industry consolidation (driven by falling revenues and rising costs) but industry disruption caused by new entrants such as Topia, Equus, Urban Bound and my own company Benivo.

The new entrants all have a different focus but they do all share the same basic mission which is to apply a technology solution to a previous largely manual process. Equus are now the market leader in providing global mobility software to both clients and RMCs. As such they have significantly disrupted a market previously dominated by the Big 4 accounting firms. Some of those firms have effectively exited the mobility software market and are increasingly focusing on their core tax competence. It will be interesting to see whether and to what extent the other firms follow suit.

Topia is the archetypal disrupter. A new entrant, founded just 8 years ago, Topia has raised nearly $100 million in VC funding. Topia’s deep pockets have allowed it to grow rapidly both organically and via its recent acquisition of Polaris (probably the number two pure-play global mobility platform after Equus). Topia’s success proves that while the relocation industry is consolidating it may not necessarily be consolidating around the same 4 or 5 majors that existed a few years back.

Other technology innovators are companies such as Urbanbound and my own company Benivo. At Benivo, our aim is not so much as to disrupt global mobility (a la Topia) as to expand it. We are not aiming to be an RMC but an Employee Welcome company. We are pioneering assignee experience through our innovative “Welcome as a Service” technology platform. Our goal is to help companies conserve knowledge so that all the learnings of the current generation of assignees are passed down to the next generation through the crowdsourcing of assignee knowledge and experience. Effectively we offer digital destination services via a 12 month subscription at a cost which is typically less than one day’s homesearch.

So what does the future hold and who will be the winners and losers. I am convinced that we will see more mergers and acquisitions over the next 2-3 years and sadly we may even see some bankruptcies. The market is simply too price-driven and too technology-focused to sustain more than half a dozen major players. The winners will be those companies who have deep pockets, excellent customer reputations and above all who have the wherewithal to innovate radically. Companies who are able to take a long-term view are also more likely to be able to ride out the storm than those who are at the vagaries of short-termist investors.

There is an old business adage which says, “Go large, go niche or go bust”. The deep-pocket players will inevitably consolidate their positions by making acquisitions. The niche players will always have a role. The mid-tier RMC’s are in the most problematic territory. They need either to find a niche they can dominate or look to potential merger parties as the market continues to consolidate it’s way down to fewer but larger players.

Brian Friedman
Created on 29-5-2018