Better Be Bulky: Size and Scale Are More Important Than Ever
Key Highlights
- Why M&A is accelerating: Companies are using acquisitions to build scale faster as major investment in AI infrastructure and other capital-intensive markets raises the value of speed and reliable execution.
- Where scale creates a competitive advantage: Larger organizations are often better positioned to absorb rising operating costs, manage changing business risks and deliver complex projects at scale.
- How size can support innovation: Greater financial capacity can help companies sustain long-term investment in AI and other technologies where meaningful progress may require significant capital.
- What midsized companies should consider: As consolidation continues across industries, leaders need to decide whether greater scale is essential to their strategy — and whether to build it through acquisitions, partnerships or other approaches.
Being bigger has always had its advantages in business. But today, scale can also give companies greater capacity to absorb costs, manage risk and pursue growth — helping explain why M&A activity is accelerating across industries.
One of the more memorable ideas of noted management consultant Peter Drucker was that size itself isn’t a guarantor of success but that a company being the right size for its industry and opportunities better helped shape its destiny. In the 2020s, however, a seemingly continuous series of business/economic shocks — there’s no need to regurgitate them all anymore, although we might now add higher interest rates to the list — appears to have created an environment that favors bulk more than before.
C-suites are acting as if that’s the case. U.S. merger-and-acquisition activity, which rose 13% in 2025, should grow another 15% this year, economists at EY-Parthenon said last month. That forecast was up from 8% in February and 3% late last year, and corporate activity (rather than private equity firms buying) is driving all of the increase. The number of deals among companies, EY-Parthenon said, is now on pace to pop 22% from 2025 as leadership teams look to grab their share of major tailwinds such as data centers, electrification, defense spending and more.
Deal growth isn’t confined to the sexy stories of the day, however. In recent weeks, executive teams from industrial distributors Applied Industrial Technologies, staffing firm AMN Healthcare and several auto parts manufacturers have said their sectors are also primed for more consolidation and that they plan to be on the right side of it.
Line of chess pieces and arrows as a concept of succession planning.“We’re seeing massive consolidation across our industries, and it’s not slowing down,” said Chris White, a founding partner and the COO of Thompson Research Group, which focuses on construction and industrial markets.
Beyond solid growth prospects in certain parts of the economy, what’s driving the current wave of M&A and consolidation? Several forces are making scale increasingly valuable — and they’re unlikely to fade soon.
Why scale is becoming a competitive advantage for delivering large projects
The supply-chain and inflation shocks that emanated from the COVID pandemic had just about subsided when a series of Trump administration tariffs helped create another round of materials, parts and equipment shortages across large parts of the economy. Those disruptions arrived just as the CEOs of several infrastructure companies were telling investors that the enormous backlog of projects being prepped under the auspices of 2021’s Infrastructure Investment and Jobs Act was finally starting to clear.
A catch with that pipeline turning into contracts: The prices of various materials, equipment and workers had risen substantially since 2021. Having reliable access to those inputs now matters more than before. And being large enough to absorb at least some of those costs increases to generate adequate margins is right behind.
Brent Haapanen, a partner at investment bank DCA Partners, said many of the classic reasons for acquiring other businesses — expanding the number of products to sell through your channels or bringing on more customers for your products — are still valid today. But he added that the need for size in many places is adding another element.
“Acquisitions are driving growth, but they’re also reducing risk,” Haapanen said. “The line between offensive and defensive M&A is blurring.”
Then there’s the enormous demand for data center infrastructure to support the artificial intelligence adoption we’ve already seen and the massive ramp expected from here. PricewaterhouseCoopers analysts recently estimated that global capital spending on data centers will total $31.6 trillion through 2050. Even if you’re a skeptic and cut that figure in half, there’s a massive amount of business to be had.
In their race to build capacity, hyperscalers such as Meta, Google and Amazon are looking at the clock far more intently than they are at the line items in their project plans. That means the ability to deliver as promised is an even greater selling point than it has always been — and that’s something large organizations can do better.
Acquisitions are driving growth but they’re also reducing risk. The line between offensive and defensive M&A is blurring.
- Brent Haapanen, DCA Partners
“The AI/data center build-out is a unique/unprecedented event — the largest investment in the world,” Kathryn Thompson, CEO of Thompson Research, said. “It’s one of the rare times where speed to market is far more important than price.”
Labor is growing in importance in this picture. More C-suites are talking about wanting to have a labor force large enough to move people from project to project and having that be a differentiator over companies that can’t guarantee they’ll have enough bodies available to meet a client’s goals. From a worker’s perspective, that kind of career trajectory (and the regular training and upskilling that often comes with it) is growing in appeal as other parts of the workforce are struggling in the face of AI or other macro trends.
Larger companies can absorb rising compliance and business risks
The Trump administration has made deregulation a core plank of its economic agenda and pushed through a host of policy and oversight changes — many of which, critics say, inherently benefit large corporations more than mom-and-pop operators. At the same time, the costs of doing business are climbing, and many compliance departments need to deal with more frequent and more substantive changes, with tariffs leading that list.
One of those climbing cost categories has been insurance: The fourth quarter of last year was the first since early 2019 that commercial premiums didn’t rise at least 3% year over year. Larger organizations can better absorb such increases, which by themselves aren’t big line items. They also can better recognize and minimize the various pitfalls of doing business. The trucking sector in 2026 could well be turning into a prime example of how higher risk produces knock-on effects.
The U.S. Supreme Court this past May ruled that freight brokers can be found liable for negligent hiring if a trucking company causes an accident. Market watchers said the decision is likely to steer third-party logistics companies away from small and young trucking firms. Speaking at last month’s Chicago Industrials Summit organized by Deutsche Bank, Werner Enterprises Chairman and CEO Derek Leathers said his team was already seeing such movement.
“It’s going to be very difficult to vet an individual owner-operator in this new world that we’re in,” Leathers said. “I think they’re going to need to come and find shelter inside of larger fleets and operating as an owner-operator with carriers like Werner. We are certainly gearing up for that and have seen some early success […] We want to have a welcome home for those high-quality drivers that we can bring into our own fleet, make sure that we do the additional vetting that we need, wrap them up in our own safety and other programs.”
This dynamic applied beyond transportation. The tariffs (and dealing with the administrative headaches they can create), changes in labor market regulations and new materials requirements that have emerged as Trump administration policies favor large organizations that have more know-how and resources. It’s not easy to see from where the impetus to change that dynamic will come in the near future.
How greater scale can support innovation and long-term investment
Greater financial and organizational scale can give companies more capacity to fund innovation and sustain long-term investments. There’s a rock-solid case to be made for the aggressive, us-against-the-world disruptors working out of the garages of startup lore. Without them, a lot of the innovations we have come to cherish as businesses and consumers wouldn’t have materialized.
boardroom_51218569_rawpixelimages_dreamstime
edge_manda_fish_1_70954063_designer491_dreamstimeBut the days of large organizations lumbering along in stuck-in-their-ways stereotypes have faded in many industries. Big names in many corners of the economy are competing fiercely for talent, capital and customers and can’t — if they ever really could — cruise along. Instead, they are being increasingly innovative in terms of products, processes and how they draw talent.
AI is starting to figure prominently in those efforts even if the results of experiments and implementations haven’t yet obviously worked their way down to many income statements. The bill for that progress is set to rise: Matt Andersen, CEO of investment bank Westlake Securities, said AI tools today are both the worst and the cheapest they will ever be. That means meaningful AI progress in the future is likely to require financial muscle.
The same investing-in-innovation dynamic applies beyond AI, too. At the recent Barclays 40th Annual Energy-Power Conference in New York City, ExxonMobil CFO Neil Hansen said the oil giant’s heft helps it commit to its projects for the long term. That, he added, helps the company create a virtuous cycle of improvement across its onshore and offshore assets, setting it apart from competitors. Both operationally and financially, being big helps you get bigger.
“What we’ve seen and what we are seeing is [that] starting and stopping in some ways doesn’t allow you to continue to learn to continue to improve, to continue to develop the technology you need to successfully invest,” Hansen said. “There are other benefits to this. I mean, if you’re leaning in in a down cycle, you’re obviously going to probably capture lower costs and improve the economics.”
And back to your workforce: Giving your teams the resources to keep learning increases the odds that they’ll want to stick around and stay on that path.
What midsized companies should consider as industries consolidate
Midsized companies facing increased industry consolidation have several strategic choices, beginning with deciding whether greater scale is necessary to compete. One way to sharpen your competitive edge is to join group purchasing organizations, which have long provided a helpful hand to smaller firms by giving them some leverage in procurement. Various ventures, including AutoTrust Dealers Alliance, a year-old dealer-owned cooperative that pools financial services and other services, have sought to build on that foundation.
Haapanen of DCA Partners said figuring out a clear strategic direction requires owners and leaders asking some big questions. For many, the starting point for those inquiries will be whether they want to play in the proverbial big leagues. If the answer is yes, what should follow from there is an honest assessment of whether the managerial expertise and organizational systems are in place to (with the help of advisors) find, negotiate and integrate deals.
If you choose to grow, another key question to consider is if private-equity backing can help by making your business a platform for others to join. That comes with considerations about family ownership and the legacy you want to leave. It also means making a multi-year commitment to seeing through a plan.
On the flip side, deciding that it’s time to move on brings with it its own set of questions, Haapanen said: Do you want to stake your reputation on that of the suitor? Would you rather be smaller and nimbler than larger and stronger? Do you know what you don’t know about what comes with selling? Do you have a support network to help you think through your options?
In between those options lies a path that says choosing not to be a consolidator doesn’t have to mean selling. A sound strategy and clear succession plan should be able to let you largely steer clear of the M&A moves of the day. But in the face of today’s strong tailwinds favoring deals and growth, the odds of doing so seem to be shrinking by the day.
About the Author
Geert De LombaerdeGeert De Lombaerde
Contributor
A native of Belgium, Geert De Lombaerde joined EndeavorB2B in September 2021 to cover public companies, markets, and economic trends primarily for IndustryWeek, FleetOwner, Oil & Gas Journal, T&D World, and Healthcare Innovation. His work focuses on strategy, leadership, capital spending, and mergers and acquisitions, and he also works with Endeavor Business Intelligence on surveys and data projects.
Geert has been in business journalism since the mid-1990s. With a degree in journalism from the University of Missouri, he began his reporting career at the Business Courier in Cincinnati, initially covering retail and the courts before shifting to banking, insurance, and investing. He later was managing editor and editor of the Nashville Business Journal before being named editor of the Nashville Post in 2008. He led a team that helped grow the Post's online traffic by an average of more than 15% annually before joining Endeavor.
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