Small businesses primed to lead M&A market

The latest RMIT Activator Enterprise Insights survey, Are startups the M&A strategy of the future?, reveals small businesses are more open to mergers and acquisitions (M&As) than larger businesses.

The survey compares the attitudes and approaches to acquisition by both startups and established businesses. It shows despite compatibility between startups and acquiring businesses, acquisitions are still viewed generally as a secondary growth strategy.

The survey highlights four key trends:

  1. Small businesses are leading the acquisition market

58 per cent of businesses open to acquisition are smaller businesses – 14 per cent sole traders, 17 per cent micro businesses and 27 per cent small businesses.

  1. “Growth through acquisition” is viewed as a secondary strategy

Only five per cent of businesses open to acquisition are currently pursuing “growth through acquisition” as a primary strategy compared to 33 per cent that are focusing on “growing the market”.

  1. Businesses are predominantly seeking start-ups that are growing and are flexible

Three-quarters of businesses express an active interest in startups demonstrating “rapid growth” and the “ability to sell anywhere”.

  1. Both startups and acquirers rank “strategic fit” on top

“Strategic fit” is the most important factor for 45 per cent of startups and 63 per cent of acquirers.

At a panel discussion held at RMIT Activator, industry experts discussed the findings of the survey and their real-world implications. They identified the main challenges facing startups and acquiring businesses and agreed integration was the key to reducing the risk of M&As. This is what they had to say:

RMIT Activator Director, Renzo Scacco

“Overall, the results show a greater alignment of views than one would expect, which should prompt businesses to re-evaluate their risk assessment of start-up acquisitions. Both acquirers and start-ups agree that strategic fit is the most important feature of an acquisition.”

“This is also a reminder to our start-up community to start thinking more strategically. Businesses want to work with people for the long term to recoup their investment and that means finding people who share their vision and can work within their team.”

Brendan Lee, Executive Director at Goldman Sachs

“Finding a meaningful role for the founder is important. Put them in a position where they feel ownership to drive the success of the partnership. You don’t want the founder to have one eye on the door…you want them to be fully passionate and committed. That’s the thing that attracts you to a business.”

Deborah Chew, Partner at Hall & Wilcox

“For a business that has never engaged in an acquisition, it can be very foreign and off-putting unless there is a compelling reason. From a small-business perspective, they fear getting swallowed up and disappearing.”

“If you’re not a professional acquirer, the best acquisition prospects are businesses that you already deal with, because you know them, you have some sense of how they work and you fit in with them. They tend to be the best buys.”

Stephen Crowe, Founder of ESIC Hub

“It’s important to really invest in the people. It’s no different to getting married. A lot of people don’t put enough work into how the relationship will look in the future.”

“Start-ups have a bit of learning to do to in how to accept advice. Big business has learning to do in understanding the startup community.”

Simon Martin, Executive Chair, iCareHealth UK

“There was a lot of agonising over whether we should sell [health tech company iCareHealth Australia to Telstra Health] and most of that was around the cultural and strategic fit. We were concerned they would crush us as a business. But the management team believed that they would be a really solid partner and assist in growing our market share.”

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