Fragmented industry

Definition

A trade where no operator holds much share, so most firms are small.

Why It Matters

Fragmentation is the reason a first-time buyer can compete at all. Where a few national firms hold most of the volume, an owner-operator is bidding against balance sheets and buying at somebody else's price. Where the largest player holds a low single-digit share, the seller across the table is another owner and the price is set by what one buyer will pay rather than by a market. It also decides whether growth by acquisition is available later, since add-ons only exist while there are independents left to buy.

In numbers: A trade with 40,000 firms whose largest holds 3% of revenue leaves 97% of it in hands that can sell to a single buyer.