How important is M&A activity for small to medium sized businesses?
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Merging with big companies is not always a good way for SMEs. SME usually benefit from government supports. losing the eligibility of SME title, may have some subsequence for them that are bigger than synergy gains out of M&A procedure.
In EU the definition of SME is as following:
staff headcount less than 250
Turnover less than 50 m Euro
EU commission has some supporting program for SMEs and change of SME into non-SME will bring the eligibility of SME for benefitting from these supports under question.
in my personal experience in one case, direct acquisition of a SME by a big acquirer raised lots of concerns from target company advisors.Acquisitions can definitely be a way to grow the customer base and revenue more quickly, but it also seems that the impact of a failed integration could be much more impactful to a small to medium sized business.
It depends on the market. Please correct me if I’m wrong – In the bigger markets (e.g. America, China), M&A may not be so useful for small companies. Because the market is big. If your operating model is correct, just “copy and paste” across all the cities.
In small markets, M&A is very important to grow. In Singapore for example, the market is small. There is a need to expand to other countries to grow. M&A is a plausible approach because to open up a subsidiary company in other countries to grow, it’s going to be a long arduous task. There will be no “know how”, no connections etc.
Hey Ryan,
I would tend to agree with you. I have seen several companies grow through acquisition, and leverage the existing cash flows to grow their business. can they grow horizontally? vertically? get into synergiztic businesses? My conclusion is that it needs to be accreative, have a cultural fit, and go smoothly- noting that SMEs cant afford to fail…For me, anyone that starts a company or launches a product should have more than one idea about their ‘end-goal’. Entrepreneurship is very time and resource intensive, and so will require considerable sacrifice, to create a success.
Therefore M&A is very important to SME businesses, because this selling their company should be one of the most realistic ‘end goals’ that an entrepreneur can succeed in achieving.
In addition, acquiring other organisations, especially SME orgs, for their technical / employee assets, is often far more cost-effective than hoping to build in-house, or hire from other organisations, where they may be incentivised with equity and therefore difficult to entice to leave.
This depends on the goals of both the business (target) and the acquirer. Some business owners try to play their small/medium size as an competitive advantage so being acquired by another company with an expansion mindset could be detrimental to that advantage.
Also, the nature of the acquisition could affect how it benefits the target company. Will the target company be acquired and let to run its operations independently while getting support from the acquirer? Or will the acquirer be looking to fully integrate the target company into its operations and product offerings?
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