World Market Turmoil Impact on SME M&A

World Market Turmoil Impact on SME M&A

What does the world economy have to do with M&A for SMEs?

With a volatile stock market, the continuation of the Euro zone in crisis, US presidential elections and commentators commenting on a long slow recovery, you may wonder what impact does this have on business sale and acquisition activity in the SME market?

We certainly do…

Let’s start with “who is buying and why”:

1. Groups of private investors: we have been contacted by a number of buyers in the last year who are experts in their sector. The groups are typically made up of 2 to 3 individuals with funds ready to invest or who are backed by private equity firms but who also wish to take an active role in the business post acquisition. Their cash is earning little in the bank and they are under pressure to make a return.
2. Strategic buyers: there are many businesses particularly in business service sectors (e.g. IT support, document management, office supplies, recruitment) who are looking not only to acquire market share but also to diversify their products/services and cross sell to the acquired client base. Organic growth is slow in the current market so acquisitions represent an immediate means to boost sales and profits. Again, there are many such business with cash reserves available to acquire.

Now for “who is selling and why”:

1. Business owners looking to retire: In the SME market it is often personal factors such as retirement or a wish to move abroad that lead to businesses being put on the market for sale. Many business owners put such plans on hold at the on set of the recession in order to wait for better economic times. Now that the economy seems set for slow growth for the next few years, these business owners are starting to take action to exit their business.
2. Businesses in need of resource to grow: Many good and profitable businesses reach a glass ceiling where further growth is difficult. Demand and potential to grow sales may be strong, but the company lacks the infrastructure and/or finance to capitalise on this. A sale or merger can provide the solution for the business owner to realise some or all of their asset at the same time as allowing the business to grow with the help of a strategic buyer who can bring the required resources and economies of scale.

Whatever the future holds in the wider economy, there are numerous active buyers with funds available to acquire businesses and with an incentive to buy. We are in touch with many such parties. And there are many good businesses who have survived the downturn with sound returns but who owners are looking to exit for a variety of reasons.

So what does the world economy have to do with M&A for SMEs? Possibly not much.