It’s a fallacy that external growth is reserved for large groups and flourishing companies! Smaller, strategy-savvy SMEs can embark on this adventure too, accelerating their development by years. Here’s a few tips on how to navigate the process:
1. CAREFULLY EVALUATE THE true benefits OF EXTERNAL GROWTH
Many SMEs consider that external growth is full of pitfalls: it’s expensive, risky and doesn’t always work. However, they should also learn how to assess the advantages: gaining a range of products, customers and technical expertise overnight etc. How many years would it take to achieve this same result through organic growth? How much would it cost? To make the right choice, we must compare the two options with real objectivity.
2. DETERMINE YOUR SELECTION CRITERIA in advance
Many acquisitions fail because so-called ‘opportunities’ are seized too quickly; without in-depth consideration. Don’t get carried away by the sense of urgency: give very careful thought to your selection criteria and apply them methodically to interested parties. Don’t forget that a low-cost, unprofitable company is rarely a good deal: you will spend a lot of time and energy sorting it out.
3. make sure that real SYNERGIES exist
Let’s say you’ve identified a potential business to buy: have you carried out a thorough audit on it? Make an honest evaluation of the actual synergies with your company. Their potentials must not simply add up (3 + 3 = 6) but multiply (3 x 3 = 9): by pooling resources, sharing information and merging client and supplier portfolios. In your case, is all this achievable?
4. seek A FINANCial arrangement THAT PRotectS YOUR INTERESTS
The techniques of financial engineering mean that it’s possible to put together tailor-made packages adapted to your specific situation. Take advantage of those that do not put your personal wealth in jeopardy – leverage buy out, for example – and avoid the risk that the failure of one of the companies would threaten the other. You must also make sure that you add any ancillary costs to the purchase price: for example, the increase in working capital requirement.
5. THE FIRST 100 DAYS are vital to success
All the experts agree: in the SME environment, you ‘make or break’ a merger-acquisition in the first 100 days.
Priority 1 : meet the employees of the purchased business – they will be worried. Explain your projects, your vision, talk about their opportunities (training, development, promotion). This will encourage their active participation.
Priority 2 : create the synergies outlined above. Organise meetings between teams from the two companies, offer training in the other business and teach employees to work together, etc.