How SMEs can master M&As

Not every SME wants to, or needs to look at merger and acquisition (M&A) opportunities, although for some they will find it fruitful for their business goals, and even mission, to do so.

Geopolitical factors, particularly elections across various markets, have introduced a layer of uncertainty and potentially explains why since the start of 2024 we’ve seen month-on-month declines in global M&A activity.

Yet as we look towards the rest of 2024, 78% of corporate business leaders are considering at least three divestments in the coming year, and as they should- M&A can be a core component of strategic planning for SMEs wanting to go down this route.

While often overshadowed by big corporate deals, M&As present SMEs with a unique opportunity to scale up and achieve sustainable growth- particularly during periods of slow activity within a business. 

So, why should SMEs explore this rarely touched, and potentially arduous process? In short, where organic growth can be slow and resource-intensive, M&As offer a faster and more impactful route to achieving strategic objectives. It can be one way for SMEs to gain access to an established customer base and market presence without the time and money that comes with investing into acquiring clientele attracting a clientele. This would be particularly beneficial for SMEs looking to enter new geographical markets or verticals. On the flip side, M&As are not for everyone and that’s also okay. 

If you have considered the possibility of going through an M&A, there are a few preliminary questions you should ask yourself.

What are your long-term goals? Growth, sustainability or are you happy where you are?

Firms of all sizes have to play the long game, and SMEs in particular, don’t need reminding about the importance of planning finances in the long term. Making sure you are educated on all business operations, especially your financial health is critical. Plus, being aware of the economic environment and more uniquely, what is happening in your specific sector will help you better understand what it is you want to achieve and how you will get there.

What is your time-frame for this growth? 

Ensuring your finances are predictable will be imperative for when your time is taken up by the acquisition process. Time is often underestimated when going through the process of an M&A, SMEs especially are limited in capacity- it’s important not to take your eye off the ball and set aside more time than you think will be needed.

Scouting for the perfect partner

When it comes to driving success, acquiring the right company is a difficult, yet important decision to make. Start by deeply understanding the market and staying ahead of industry trends- this foresight positions you to identify acquisitions or mergers that offer true strategic value. It’s also essential to keep a close watch on what your competitors are doing. By analysing what they’re doing and who they’re scouting, we can glean lessons from their experiences and avoid the pitfalls that our peers have experienced. .

Don’t let stress get to you

Xeinadin found that 48% of small business owners in the UK experience substantial stress from running their business. Whilst the stress of running a small business is a challenge in itself, with notable effects on mental, physical, and personal well-being, the process of an M&A is bound to be overwhelming for some. Having an advisory board of individuals (or trusted individuals who have experience in certain areas that could assist your own thinking) can help alleviate the stress and pressure felt in the process of an M&A, especially at the start. They can help you better understand your reasons for pursuing this channel towards growth.

Is the company a good fit culturally and financially?

It's essential to thoroughly evaluate potential partners for cultural and operational compatibility. The ‘marriage’ between two companies is never easy. A mismatch can lead to integration challenges, which is why understanding the intricacies of the target company is essential. This includes a deep dive into the executive team, financials, assets, and liabilities, as well as an assessment of potential collaboration opportunities and risks. Ultimately, a good fit will then promote knowledge sharing and best practices between the merged companies.‍

What we wish we knew before doing M&As 

Every SME should be asking the following questions; does the business fit with you culturally? 

What is their track record/reputation in the industry?

Keeping these questions in mind prior to the transaction will significantly improve the quality of the deal and likelihood of a successful M&A.

Here are five lessons we learnt along the way: 

• Do not rush the due diligence process. Many businesses rush into deals without fully assessing the potential liabilities, which can expose them to long term risks and diminish the chances of a successful outcome. 
• Prepare yourself by taking stock of your business position - know your business inside and out. Ensure you have all of your business administration processes in place, be up-to-date with your finances, and have your records to hand. 
• Be ready to transact so it doesn’t put the seller off. This process, although lengthy and arduous, requires undivided attention. Business owners will need to focus on the transaction for a bit, letting someone they trust to get on with the day-to-day business operations.
• Do your best to understand the true monetary value of the company. Overvaluing a company is a common pitfall that can lead to overpayment and erode the expected value of the deal. Understanding these aspects early-on is invaluable when entering the M&A process effectively.
• Create a detailed post-merger integration plan- M&As don’t end when the deal is signed. Businesses often underestimate the complexity of integrating two companies and wish they had planned more meticulously for this phase.

While mergers and acquisitions are not a one-size-fits-all solution for SMEs, they can offer an avenue for growth when approached thoughtfully and strategically. The process, though complex and demanding, provides unique opportunities for SMEs wanting to scale rapidly and gain competitive advantages that might be unattainable through organic growth alone.