Mergers and Acquisitions. The term is synonymous with big MNC’s , high rise offices and suited men exchanging briefcases and witty dialog. The flashy facade that hides the monotonous and tedious legal and financial legwork that encompases the majority of these types of deals. Enamored by pop cultural representation of the industry and the work that it entails, laymen overlook the smaller scale businesses of the financial spectrum.
As per investopedia, Mergers and acquisitions (M&A) is a general term used to describe the consolidation of companies or assets through various types of financial transactions, including mergers, acquisitions, consolidations, tender offers, purchase of assets and management acquisitions.
Since the taxonomy referred to in the definition is “General Term”, the definition should scale down and apply just as well.
As Business brokers working in the SME sector, the issues and obstacles we face and the scope of services we offer are similar yet very different to our Investment banking counterparts.
The crux of the issue resonates not only with the scale of the transaction but the number of transactions as well. For a feasible business model, business brokers have to target multiple smaller deals to make up for the smaller deal values and unlike a simple product like real estate or an FMCG good, the complexity of the business implies a high degree of customised service for each transaction.
Below we have categorized some of the issues and problems we as business brokers specializing in the SME sector face.
Preconceived conceptions :
Business owners as well as Investors often have preconceived conceptions regarding multiple facets pertaining the the various stages of the acquisition process. From expectations regarding the time period it takes to sell the business to the valuation approach taken to estimate the companies worth.
The best solution to handle preconceived notions is to layout the factual fallacies present within their ideas in relation to the process of closing a deal. Successfully convincing a client that he may be wrong without losing him as a customer requires us to have practical experience in closing deals, strong fundamental base in the subject of the dispute and the trust of the client.
Understanding the business’s financial and operational intricacies is imperative to not only better understand the key points and caveats but also finding the right buyers and investors for that particular business.
The “reason the promoter is looking to sell the business” changes the transition process and has a cascading effect with how the new management will run the business. The way the buyer/investor’s approach to running the business will be dramatically different if the promoter is looking to sell the business due to old age as compared to mis-management.
An important factor that affects the transaction is the stability of the business is the current and past financial and operational status . Depending on any shortfalls, be it in profitability or management, any factor that affects the daily operations and the return on the buyers investment will affect the deal negotiation immensely. Historic stability and dependance of the business on the promoter l will greatly affect the perspective of the buyer.
To Summarize, a few things to keep in mind are:
Perspective of the owner
Stability of the business
Dependence of a business on its promoter
Assurity of the projected cash flows.
Issues of the human resource for the new buyer.
Monotony, Atrophy and Tedious Activity:
The underlying activity behind SME mergers and acquisitions is fundamentally- financial matchmaking. Understanding matching requirements of two individuals or groups and negotiating between them. In a high volume business which works on large scale- low margins, standardization helps to automate processes however with the complexities of a business as a product the amount of human intervention at each stage of the process is greater in comparison as compared to a simpler product such as insurance and real estate.
Higher involvement at each stage especially simple and repetitive tasks such as Potential Client Databasing and follow up tend to tire and exhaust employees, lowering efficiency & productivity levels. A way around is to implement technology that automates some highly repetitive but personalized tasks such as A.I. and Big Data Analysis but the high investment barrier is a deterrent for smaller companies and newer entrants in the market.
The inherent barriers and short falls of the SME Mergers and Acquisitions Industry in india are varied and multiple in number ranging from the complexity of a business as a product to the scale required for a firm to be feasibility but there is no denying the potential of an untapped market with strong demand in a country like India. As time passes and as the market develops the demand for M&A services in the SME sector grows rapidly.