Market Share

Market share indicates the proportion of a defined market's total revenue or volume that a company holds. It is calculated as own revenue divided by market volume, or alternatively on a volume basis, which produces markedly different results where price levels differ. What matters is how the market is defined by product, customer group and region, because a narrower or wider definition shifts the figure considerably. That is precisely why sale documents regularly adopt a very narrow definition showing a leading position, while a wider definition gives a different picture.

Diligence therefore asks about the source of the market volume and whether competitors use the same definition. In an acquisition between competitors, the combined shares in markets where they actually overlap matter most. A high share can complicate competition review and mean additional time or remedies for the deal. The market definition used in sale materials does not replace that assessment. Buyers should also ask whether the share was won through sustainable advantages or low prices and correspondingly weak margins. The measure only becomes meaningful over time, because a stable or growing share in a growing market means something different from a share held in a shrinking one.

It should further be distinguished from share of wallet, which indicates what part of an individual customer's spending goes to the company and is often more informative when assessing expansion potential. In highly fragmented markets of the kind common in the German mid-market, individual providers' shares are frequently in the low single digits, so it is regional standing rather than absolute share that determines pricing power. For sellers the trend over several years is the stronger argument, because a growing share in a stable market points to genuine competitive advantages.