One in ten small and medium-sized businesses are actively considering acquiring a competing business, according to a new study that raises the prospect of increased M&A activity next year.
One in ten small and medium-sized businesses (SMEs) are actively considering acquiring a competing business, according to a new study that raises the prospect of increased mergers and acquisitions (M&A) activity next year.
In line with forecasts from the Bank of England that suggest growth will soon pick up in the UK, a poll of 500 SME business owners and directors has found that M&A activity looks set to increase in 2012.
According to the research from invoice and asset-based lender Venture Finance, a quarter of the 10 per cent of SMEs planning acquisitions of competitors aim to complete a transaction in the next six months. Some 29 per cent plan to do so within a year.
Overall, more than a quarter (27 per cent) of businesses report that they have the resources to acquire a competitor’s business now. These businesses estimate they are sitting on an average of £190,000 each in funds.
However, the research finds, there is a distinct lack of past experience among SMEs, with potential to create deal-making difficulties.
Three-quarters quarters (78 per cent) of SMEs have never acquired a company before, and as a result, many say that they may lack the knowledge of the financial or operational side of carrying out an acquisition or business sale.
A third of SMEs say they have no idea of how to engage in an acquisition or merger. More than a third (35 per cent) believe they would not know how to position for an acquisition.
A similar proportion (36 per cent) say they would not know how to structure the financial side of an acquisition. Additionally, nearly two thirds (61 per cent) confirmed they would need external advice when looking to acquire a business.
Steve Websdale comments, ‘Despite the potential, many SMEs appear to lack the experience required to undertake a smooth acquisition or sale. This could lead to poorly structured deals and financial headaches for first time buyers.’