Traditionally, fear of losing control has been the main excuse for not growing inorganically. However, in a world where we've grown used to living in a permanent state of alert and needing to adapt quickly, growth through mergers and acquisitions (M&A, Mergers & Acquisitions) is gaining ground among Spanish SMEs as a way to accelerate growth and minimize risk.
We can identify five advantages that explain why M&A deals are key to the development of a small or medium-sized enterprise:
1.- Consolidation: one of the main arguments in favor of mergers or acquisitions is that they're a fast way to gain size (market share) and consolidate industries. At the same time, reducing competition results in stronger players.
2.- Diversification: M&A deals provide access to new geographic markets or consolidate and expand a presence in markets where the company already operates. They also open the door to new products or services and bring in customers or resources that would otherwise be hard to reach. This also helps minimize risk.
3.- Talent: it's an effective way to acquire talent and specialized know-how. By joining forces with another company, an SME can attract and retain qualified, experienced talent, which can improve its ability to innovate and develop new solutions for its customers.
4.- Synergies: combining two companies creates synergies and efficiencies that wouldn't be possible individually. For example, an acquiring SME can leverage the experience and technology of the acquired company to improve its own products or services. These synergies also translate into economies of scale and cost reductions that, in turn, improve the profitability and competitiveness of the combined company.
5.- Succession: these corporate transactions are a solution to the lack of a successor that affects many SMEs in our country. This situation will grow over the next decade as the baby boom generation reaches retirement.
KPMG's latest report, “Perspectivas de M&A en España en 2021” (M&A Outlook in Spain 2021), based on a survey, confirms these benefits. The three main reasons for carrying out a merger or acquisition are: expanding the customer base (40%), consolidating the market (35%), and geographic expansion (32%).
Factors for a successful M&A deal in an SME
For an M&A deal to succeed in an SME, it's important to consider the following factors:
Strategy
SMEs need a well-defined strategy for the M&A deal. This includes clear objectives, a detailed market analysis, and a proper assessment of risks and opportunities.
Due diligence
Due diligence on the other company is essential to make sure you're acquiring or merging with a solid, solvent business. Beyond financial due diligence, this can include several other types, such as legal, tax, real estate, or environmental due diligence.
Integration
Once the M&A deal is complete, it's important to make sure the integration is effective and doesn't create problems. This involves drawing up a detailed integration plan and assigning clear responsibilities to team members.
Communication
Communication is essential at every stage, from planning to integration. This means regular, transparent communication with all stakeholders: shareholders, employees, customers, and suppliers.
Change management
An M&A deal can bring significant changes to the SME's organization and corporate culture. That's why it's important to have an effective change management strategy to help employees and other stakeholders adapt to the new situation.
Follow-up
Finally, it's important to continuously evaluate the corporate move to make sure the objectives are being met and the integration is working. This will allow the SME to adjust its strategy and address any problems as they arise.
3 examples of successful M&A in Spanish SMEs
CIE Automotive
The automotive components manufacturer is “a story of integration,” as the group itself puts it. Founded in 1996 under another name, it grew through acquisitions and integrations of SMEs until, in 2002, it merged with Grupo Aforasa, giving rise to CIE Automotive. In nearly three decades of existence, it has completed more than 70 M&A deals. Today, it's a multinational with a presence in 16 countries across four continents and revenue of more than €3.8 billion.
Fluidra
Founded in 1969 by four families, this pool equipment manufacturer initially grew organically, both in Spain and internationally, until it began a phase of acquiring companies in 2000. In 2007, it went public, and seven years later it merged with US-based Zodiac. Today it's listed on the IBEX 35, with sales of more than €2.3 billion.
Faes Farma
Founded almost a century ago, the pharmaceutical company has also built its growth strategy on acquisitions and mergers. 2017 was a very active year for acquisitions as a way to expand and diversify its business, with the aim of preparing for growth this decade and creating value for shareholders, employees, and society at large.
It's important to keep in mind that not all mergers and acquisitions are successful and that they come with risks and challenges. That's why it's important to carry out thorough due diligence, know the value of the company you're going to partner with, and get advice from M&A professionals.
