In the field of mergers and acquisitions (M&A), a large proportion of the transactions carried out involve small and medium-sized enterprises (SMEs)—even if this may seem surprising at first. The general public usually only takes notice of mergers involving large corporations and other transactions in the billions.
According to a survey by the Handelsblatt Research Institute and DZ Bank, more than 2,100 M&A transactions were recorded in Germany in 2021, an impressive 90% of which involved small and medium-sized enterprises.
Since the onset of the COVID-19 crisis, however, numerous companies—especially SMEs—in Germany and other countries around the world have found themselves in financial distress. Labor shortages are just as noticeable as production and supply bottlenecks—and other global events, such as the war in Ukraine, are further impacting costs and availability.
That’s why M&A in the SME sector makes particular sense right now
In such economically challenging times, M&A transactions in the SME sector can be a worthwhile step toward business success. There are essentially two options:
Acquisition of a company:
Acquiring a company or merging with several equal partners can open up entirely new market opportunities and create room for promising developments.
Sale of companies:
Selling an entire company—or even just specific shares of the business—can often prove to be the best financial solution.
Although experts had assumed at the start of the pandemic that M&A activity—including in the SME sector—would decline, the growth trend was not interrupted for long. The healthcare and pharmaceutical sectors, as well as industry and manufacturing, are currently on the rise, while the restaurant, tourism, and leisure sectors continue to struggle due to the pandemic.
The current upswing is primarily attributable to investors, both private and institutional. However, they are not merely providers of capital; in many cases, they also support the family-owned businesses whose shares they acquire by offering advice and assistance in developing corporate strategy.
The Advantages of M&A in the SME Sector
There are numerous internal and external factors that influence companies and make a purchase or sale either necessary or particularly lucrative.
Sale or Merger:
One of the most important factors is business succession, because as the baby boomer generation retires, a large number of successors will be urgently needed in the coming years—particularly among small and medium-sized enterprises—and mergers or sales offer a suitable solution here. Selling individual divisions or business units can also help a company focus on its core business.
M&A can also be a decisive factor in the SME sector when technical innovations or, for example, the increasingly relevant ESG criteria force companies to undergo a more or less complete transformation. Depending on the specific case, a sale may be the optimal solution; however, under certain circumstances, a merger can help to quickly and effectively develop new business models or adapt existing ones accordingly.
Mergers are also a viable option when there is a severe shortage of skilled workers within the company that needs to be efficiently addressed.
Acquisition or Merger:
The expansion into new markets beyond one’s own saturated market, made possible by corporate mergers or acquisitions, is an option that can be successfully realized through M&A transactions. Financially strong companies with a clear strategic focus can also benefit from lower company valuations—this often presents interesting acquisition opportunities with significant potential for success.
M&A Matching Tools for the Purchase and Sale of SMEs
Interested companies, potential buyers, and M&A advisors now find it significantly easier to identify suitable deals. Even before the COVID-19 pandemic, ongoing digitalization had already been driving the shift of M&A activity in the SME sector increasingly online, but this trend has now accelerated even further.
Virtual tools for handling M&A transactions enable faster, simpler, and therefore significantly more efficient process management. This is primarily because a large number of buyers and advisors are brought together via big data—the deal flow is automatically matched against buyers’ search profiles using specific algorithms to identify positive matches, thereby delivering highly tailored results.
Bright Outlook for M&A Transactions
Even in times of crisis, M&A transactions in the SME sector do not come to a standstill—while some companies can use their high liquidity to acquire other firms and tap into new markets, struggling SMEs have the opportunity to sell shares or merge with other companies to secure their long-term survival.
Thanks to the digitalization driven by the COVID-19 pandemic, such transactions can now be completed online even more quickly and conveniently—a trend that, while initially driven by immediate circumstances, is likely to continue in the coming years.
