Mergers & Acquisitions as a growth strategy can be under-utilised by small and medium-sized businesses.
But the benefits can be profound and it’s not just the multinationals getting in on the act…
🎯 CUSTOMER ACQUISITION
It’s the obvious way to expand a business’ customer base. While at the company level, customer acquisition is generally more expensive than customer retention, acquiring new customers through actually acquiring another business with its own set of customers, can be both cost-effective and rapid, if done properly.
🎯 INCREASED VALUE
By making specific improvements to the performance of the target company, which can be identified beforehand, it’s possible to increase profit margins and cash flow, improving the company’s value and the overall value of a merged entity at the same time.
🎯 UNLEASHING THE TALENT WITHIN
I’ve worked alongside numerous SMEs with incredibly talented and seriously dedicated people. It’s the individual talent which frequently explains the longevity and success of the target company.
In fact, one of the key benefits of acquiring or merging a business is the inevitable talent which will exist within the company. It’s likely that you would never be able to acquire such valuable experience, knowledge and expertise quite so easily, simply by hiring from scratch.
🎯 OBTAINING TECHNOLOGY AND IP
It’s not just tech start-ups and multinationals with a monopoly on technological innovation and intellectual property. Many ordinary businesses will possess some kind of IP, or product range, which forms part of their secret sauce. Only through M&A will sometimes quite proprietary tech become accessible, outside of the target company.
🎯 BREAKING THE GLASS CEILING
One of the major issues facing SMEs is the invisible barrier to growth, which prevents ambitious owners from realising their goal of world domination. Take one example, of winning major new contracts as a way of scaling the business. The problem can be that the procurement processes of PLCs can directly or indirectly preclude certain categories of SMEs from participating.
Not being seen as ‘big enough’ to do business with prospective new customers who are PLCs, can easily become a Catch-22 scenario and consequently lead to years of unimpressive growth, even for a highly capable and profitable company.
Various models of M&A can deliver the necessary scale required to break through the glass ceiling and join a bigger league.
🎯 ECONOMIES OF SCALE
Similarly, the larger the new entity, the bigger the potential upside around a range of business activities, such as the company’s own procurement processes, including more favourable pricing, volume discounts and payment terms.
It’s also possible to achieve the same level of turnover, with a more streamlined operation to support the overall sales effort. Meaning an improvement to the bottom line. Achieving scale has numerous other benefits, not least the ability to attract and retain an even wider pool of talent.
🎯 CONSOLIDATION
Not just something for the big boys. Fragmentation and over-capacity can occur in any sector and certainly with small and medium-sized businesses at the local or regional level.
Having a mechanism, such as rolling up multiple businesses, can prove an effective method of shaking out excess capacity in the sector, improving customer experience and delivery, while constraining the negative impacts of market participants simply crashing out of business with a bang.