The reasons a company and an investor consider an M&A deal, on both the sell side and the buy side, can vary widely and range from personal reasons to strategic and commercial motives.
- Personal reasons: On a personal level, the lack of a successor often leads the owner or owners to seek to sell the company in order to monetize so many years of effort and ensure the continuity of the projects and the business being run. In addition to retirement, which is a very common reason for seeking to sell a company, especially in the case of family-owned SMEs with no one to carry on the business, we find a very wide range of personal motivations — from wanting to change career paths to considering new projects — that lead a business owner to no longer want to lead the company, and to look for a buyer in order to get a fair price for what they have built over years or decades.
- Strategic and commercial reasons: Strategic and commercial reasons differ depending on whether we're talking about the sell side, that is, the company itself that wants to be sold, or the buy side, that is, the investor looking for a business opportunity by buying a company.
On the sell side
The sale of an SME that performs steadily and has demonstrated certain levels of success and performance may be due to a lack of options for family succession, difficulties scaling production, or even the outlook for the business itself, among other factors.
- Prof
- essionalization, internationalization, expansion:
- Companies with a solid track record and a well-established business model that operate successfully are often unable to
- ta
- ke the company to the next level due to a lack of experience and capital
- , of financial muscle, to make the necessary investments. That's why a corporate transaction that allows part or all of the company to be sold can aim to gain investors' best practices, apply synergies from other portfolio companies, integrate more efficient management systems, professionalize teams, and also secure the resources needed to increase production, carry out planned internationalization, and/or expand production lines, among other goals.
On the buy side
Interest can center mainly on three basic structures that will determine the scope of the M&A deal, from a technical-legal and technical-financial standpoint as well as from a strategic one.
- Gain mar
- ket share:
- When two or more companies join together, the market shares of all the organizations involved merge into one — consolidating the customer portfolios each had separately and making it possible to cover broader market segments. At the same time, it allows overhead costs to be shared and reduced, generating economies of scale — derived from the fact that many unit costs decrease as production increases — and improving the efficiency of the new organization as a whole, to a level greater than the sum of both separately, thanks to the synergies the deal brings about.
- Geograph
- ic diversification:
- Why build a company from scratch in a foreign country when you can acquire an existing, well-established, cash-generating entity with a recognized market position and a customer portfolio, supplier relationships, specific know-how… and use it as a platform to grow your own company in that country?
- The most successful example of this has been the Spanish bank Santander, which has acquired banking chains in 9 countries outside Spain and become one of the largest retail banking institutions in the world.
- Access
- new market segments and diversify the range of products or services
- on offer, avoiding the cost of developing new offerings independently, which also increases companies' competitiveness and diversification. This saves the high upfront costs of developing and launching a new product or service from scratch, stemming from research and development, marketing, fixed capital investments… and starts from an existing base, an operating and profitable business, from which any changes and improvements deemed necessary can be made.
- Gain acc
- ess to better technology and more resources:
- In the case of sophisticated technology solutions and highly innovative products, initial development, in addition to being very costly, can take years and have an uncertain outcome. By acquiring a company, you also quickly acquire its specific know-how, its intangible assets, such as patent rights, and its production processes, which can not only be exploited in their own right but also integrated into the existing organization for all kinds of advantages.
- Internalize processes
- such as design or sales and marketing, gaining greater control over them and saving on outsourcing costs. This is known as
- vertical integration
.
- Obtain tax benefits
- such as tax credits or exemptions, and through tax consolidation and related-party transactions, by creating holding companies and business groups that are taxed in a coordinated way, taking into account the interests of the whole group rather than each company in isolation.
- Gain bargaining power:
- The larger a company is, the greater its ability to exert pressure and negotiate, so mergers are positive in this respect.
- Improve market position: likewise, if several companies in the same sector merge, part of the competition ‘disappears,’ and the resulting merged company gains a better market position by combining forces, market share, and profitability. This is known as horizontal integration, whether it's achieved through a merger between several companies in the same sector or through the acquisition of one or more of them by another.
SMEs offer many strategic opportunities for institutional and business strengthening through mergers and acquisitions, creating value for their owners, partners, or shareholders. As a result, SMEs are seeing these types of transactions as an opportunity to successfully address: the challenge of succession, capitalizing on many years of dedication and work; expanding their local reach; and the internationalization process.
At Deale, we understand the needs of both parties and help ensure not only that the sale process of an SME is carried out rigorously and with the proper safeguards, but also that the groundwork is laid so the deal's objectives can be achieved with less effort.
