All enterprises, whether they are small or medium-sized enterprises or large enterprises, follow a business life cycle including standard phases-startup, growth, maturity, decline, rebirth/innovation/death.
The duration of each step may vary due to various internal/external factors, but the above-mentioned stages always apply. In addition to the initial start-up phase, companies can enter many innovative and strategic business decisions and associations to achieve new expansion, growth, or even to survive or completely exit or close down. Mergers and Acquisitions (M&A) is one of the most important decisions a company can make.
Although the corporate world continues to report news about large M&A transactions and transactions supported, represented and executed by large investment banks, large companies are involved, but small and medium-sized companies may find it difficult to find suitable M&A consulting companies to help them in such transactions middle. This article focuses on how small and medium-sized enterprises can determine the right M&A advisory partners, important information about the services provided by M&A advisory companies, the attributes to look for, and the steps to obtain the best transaction partners.
Why and when should you consider SME mergers and acquisitions?
Opportunities or necessities drive strategic business decisions. As detailed in the business life cycle diagram above, an enterprise has gone through different stages and may need to expand, contract, cooperate, spin-off or even close/sell certain business units or the entire business. A sale by one party is an acquisition opportunity for the other party.
There may be various situations and reasons why companies consider mergers and acquisitions:
- Increase turnover by merging or taking over companies with complementary business lines
- Increase market share by taking over competitors
- With excess cash, you can explore more profit opportunities by acquiring external companies to obtain better returns, instead of investing in existing businesses to obtain relatively low profits or generate low interest income from idle cash
- Survival needs-loss-making, declining companies may need to make difficult decisions to ensure survival. Cooperating with other companies or selling the business to others may be a better decision than letting it die because of a loss.
- Corporate restructuring-usually the reorganization of equity and debt, thereby reducing loan costs, thereby introducing new acquirers or shareholders
Why is it difficult for small businesses to find M&A consulting companies?
- Small businesses may have smaller requirements for mergers and acquisitions, which means that the transaction value is lower, so the commissions and fees for merger consultants are lower.
- Small businesses may be looking for local/regional partners, and there are not many M&A advisory companies with expertise at different regional levels
- The scope of small businesses may be restricted in the matching of products and services of both parties, making mergers and acquisitions difficult
- The business owner’s knowledge and perspectives may be limited, often limited by anticipated local goals and partnerships
How can M&A consulting firms help small businesses? Services and expectations of M&A consultants:
Small business owners may not have the necessary expertise and network to find the right opportunities to provide the required strategic shift. M&A consulting companies can help because they can provide expertise in these areas. The following provides a general list of services provided by consulting firms for any M&A transaction. Depending on the service selected, charges may vary. M&A consulting company assistance:
- Identify counterparties that meet customer expectations.Using their network, they also ensure proper promotion or confidentiality as needed
- Designate necessary professional services, which may include legal and financial services, conduct due diligence, etc.
- Valuation of business units related to M&A transactions; determine the fair expected range of transaction value
- Assist in arranging the funds required for the transaction as needed; provide necessary negotiation and consulting services with financing companies
- Make initial offers to interested stakeholders and counterparties based on the transaction contract
- Negotiating transactions with counterparties (which in turn may be represented by similar M&A advisory)
- Structure transactions based on arranging payments and obtaining the consent of all stakeholders
- Finalize the legal terms of the transaction (including contract, guarantee, compensation)
- Draft transaction terms-which may include changes in equity structure, debt and equity restructuring, etc.
- Assist in drafting other necessary strategic decisions and timetables-such as when to publicly announce a transaction on the open market, and notify employees when the transaction results in layoffs, salary cuts, or other impacts on employees.
- Draft an integrated service outline across product and service lines, operations, etc.
What are your expected goals and expectations for the proposed merger?
Before contacting any M&A consulting company, it is very important to do your homework. The most important point is still what you want from the transaction (purpose). Here are a few important points to consider:
- Which side are you on-do you want to increase your market share through a merger or acquisition with another company? Or are you willing to sell your business to exit? The acquirer expects the lowest price, and the seller expects the highest bid. Keep your expectations clear and realistic, and agree with M&A partners.
- Do you want to enter new markets and expand your market base through mergers and acquisitions?
- Are you looking to acquire (or merge) new businesses to add new products, improve processes or upgrade technology, add to your existing product portfolio, and/or increase operational efficiency to save costs?
- Does your M&A risk aim to reduce operating costs and thereby increase profits?
- Are you trying to get ahead through strategic mergers and acquisitions (which may kill your competitors)?
- Have you explored freely available resources, such as business journals, newspapers, and portals (such as BusinessForSale, BizBuySell), which provide useful information and services for assessing your business, listing available transactions and risks, and such information and services may be useful Your expectations are very useful and related to your expectations.
Choosing and cooperating with an M&A consulting company:
For small businesses, business transactions are a once-in-a-lifetime opportunity, and it may make or break the entire enterprise. Choosing the right partner becomes very important. The following guidelines can help:
- Keep an open mind; go global; explore all possible options, which may seem impractical at the initial stage, but they seem meaningful.
- Be selective-don’t rush to the first company you come into contact with, especially if you are looking for a merger/acquisition deal (rather than a sale). Remember, selling is easy, because once the sale is completed and the expected price is obtained, your responsibility is over. Mergers/acquisitions require long-term commitment to integrating and operating the business, so make sure you get the right consultants who can help you fairly. Put several companies on the shortlist and further evaluate them based on the following points.
- Before contacting M&A partners, conduct SWOT analysis of M&A transactions on their own and propose realistic valuations for expected transactions. This type of work will help you negotiate better transaction valuations, fees and charges with your advisors.
- When selling a business, most owners trust their accountant’s fair valuation. Although this is good for initial ideas, accountants may fail in other areas, such as proper marketing, networking, and attract interested parties to provide you with the best prices. Choose M&A consultants who are well-known in these aspects to provide you with the best prices.
- Does the consulting company have expertise in the market, region, product line, service line, technology, or any other applicable parameters that are the core agenda of your merger and acquisition? Have they successfully executed similar transactions in the past?
- Have M&A advisory firms’ past transactions been successful? Are there any legal, operational, financial or other challenges that have become news in the market?
- Don’t lose your focus on the target-does the consultant of the M&A company meet your expected purpose of participating in the M&A transaction? Are there any loose clues that once the deal is signed, your M&A partner will escape and leave everything to you? Does the high-level structure of the transaction proposed by the consultant meet your short-term, short-term and long-term goals?
- During work and preliminary discussions with M&A consulting companies, pay close attention to the reasoning and justifications they provide, especially the valuation. With the support of your own SWOT analysis, be prepared to have realistic and constructive discussions with them on the deal size and valuation.
- At the time of sale, when you have multiple counterparties competing for your offer, the best deal will appear-does the M&A company guarantee you the minimum bid/number of bids and the minimum threshold amount from different counterparties?
- As long as the expected price is obtained, it will be easier to sell the business. Purchasing something is challenging because the acquirer pays a price (which can be expensive) and also bears long-term responsibility for further operations. Evaluate your M&A advisor based on their past continuous participation records and their success with past clients.
- How much does the consulting service cost? Although many business owners may think that M&A advisory firms will reduce the deal size based on a percentage of their fees, advisors may charge other fees. This may include upfront consulting fees, monthly retention fees, registration and registration fees, etc. Clearly record expenses to avoid accidents.
- Not all services referenced are free; each may require additional charges. Don’t just trust the M&A advisory website and brochures-but discuss everything clearly.
- Cooperate with M&A consulting company: A good consulting company likes to see the continuous participation, active contribution and participation of customers. It is not advisable to give everything to a consulting company just because you are paying, because it leads to missing important details, making assumptions, and lack of commitment and clarity, which ultimately leads to future challenges, frustrations, and failures.
- Post-integration/acquisition services: Unless you are a seller, it is important to focus on the integration of new acquisitions or merged businesses. M&A consultants usually assist in the formulation of high-level integration plans to be executed after the M&A transaction. Evaluate potential M&A partners in similar transactions in the past and their effectiveness in implementing these transactions.
- Seek M&A advisors, not just commercial brokers-after the transaction is completed, the broker’s job is over. M&A consultants work with clients to clearly specify long-term planning, structuring, and detail all aspects of business integration.
Both large investment banks and small boutiques can provide M&A advisory services, but the cost can be high. It is important to evaluate them in all applicable areas, including expertise, services and related factors.
Excellent M&A consultants will eventually move away even if they are hired for a long time. In the end, everything has to do with the owner. In order to achieve the goal of an M&A transaction, it needs to be controlled from beginning to end. Continuous participation, evaluation and joint cooperation with M&A consultants will not only make the transaction clear, smooth and easy, but will also hone the owner’s business acumen and skills for learning in the process.