SMEs have the appetite but not the skills for acquisition
ONE in six SMEs in Birmingham is actively considering acquiring a competing business, according to a new study.
Independent invoice and asset-based lender Venture Finance said the transaction increase looked set to start in 2012 as appetite for growth returns. Half of those planning acquisitions plan to do so in the next six months.
However, the study concludes deals may be stymied as business owners admit to a lack of experience in the acquisition process.
Guy Walsh, business development manager for Venture Finance in Birmingham, said: “For those businesses that have weathered the last few years well, the time may well be ripe to reap the rewards now with competitive acquisitions.
“But many of these ‘first time buyers’ will need a helping hand to make sure they take the best financial and structural approach to strategic acquisition.”
The study is based on research amongst 500 SME business owners and directors. It concludes the appetite for acquisition looks set to increase quickly as SMEs explore their options. The majority (88%) of those hoping to acquire a business plan to do so in a year or less.
More than a quarter (26%) of businesses say they have the resources to acquire a competitor’s business now. Nationally, SMEs estimate they are sitting on an average of £190k each of investable funds.
“Business owners are looking at opportunities as they arise, but they don’t always recognise the varied assets they have at their disposal and how they can be used to structure an acquisition,” said Mr Walsh.
“As well as their cash reserves, businesses will need to explore and capitalise upon assets they already own to finance their acquisitions. By using existing assets they can steal a march on their competitors.”
However, there is a distinct lack of past experience amongst SMEs, with potential to create deal-making difficulties, the research uncovers.
The majority (86%) of SMEs have never acquired a company before. As a result, many lack the knowledge of the financial or operational side of carrying out an acquisition or business sale.
Over a third of SMEs (38%) said they had no idea of how to engage in an acquisition or merger. Almost half (44%) said they would not know how to position for an acquisition.
A similar proportion (40%) said they would not know how to structure the financial side of an acquisition.
Almost two thirds (64%) confirmed they would need external advice when looking to acquire a business.
“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,” said Mr Walsh.
