Guiding SMEs through the mergers & acquisitions (M&A) process

A merger involves two companies combining to form a single entity to improve their market presence, enhance operational efficiency, or leverage shared resources. 

An acquisition occurs when one company purchases another to integrate its operations, gain a competitive advantage, acquire a competitor, or enter new markets.

The primary purpose of M&A is to strengthen the business by combining resources, entering new markets, reducing costs, or gaining new skills and technologies. These help businesses stay ahead of the curve by promoting growth and creating more value for customers and shareholders. 

What do you want to achieve?

A successful merger or acquisition requires a strategic approach. It is particularly important for small and medium-sized enterprises (SMEs) to tailor their approach to strike a balance between maximising ambition and the resources available. 

Whether it is market expansion, diversification, or acquiring specialised talent, it is important to identify the purpose of the merger or acquisition, assess the risks involved and set manageable goals. 

To make the procedure as smooth and efficient as possible, it is necessary to assemble a team of experts to guide you through the M&A process. The team should include internal individuals who are familiar with your business and its goals. The team should also include external individuals, such as financial and legal experts. This is where we come in. 

Finding the right target

Identifying targets typically involves market research to determine the key players, growth trends, and gaps in the industry. Once these have been identified, you can then establish which factors are closely aligned with your company’s strategic goals.

You should also establish criteria for target selection, which might include size, location, financial stability, cultural fit, or customer compatibility. It is unlikely that an SME in the retail trade industry that is focused on bespoke designer clothing would want to acquire or merge with a discount retail chain as both companies would be unlikely to align culturally or in terms of customer compatibility. Similarly, a small start-up company specialising in cyber-security may want to expand its operations, but merging with similarly small start-up company may not be risk averse, as neither company are likely to be financially stable.

Once criteria have been determined, you and your team of experts can discard any incompatible targets and then use professional networks and relationships to initiate opportunities to connect with businesses that fit the criteria.

Having found a potential target, you should evaluate them through financial checks, operational reviews, and cultural fit assessments. 

Combining careful research, expert advice, and a clear strategy will allow your business to prioritise targets that align with your strategic goals, satisfy your appetite towards risk, and offer the best value. 

The key phases of an M&A transaction

Starting the conversations

When you find an appealing target, you should reach out to discuss a possible deal. If both parties are interested, a non-disclosure agreement (NDA) should be drafted by your legal team to ensure confidentiality during negotiations. 

Once both sides agree to move forward, heads of terms (HOT) will need to be agreed. HOTs outline the preliminary terms of the deal, including price, structure, and key conditions. Your team of experts should help design the legal and financial structure of the deal to maximise benefits and minimise risk.

Due Diligence

Due diligence involves doing your research! It is evaluating the target company’s legal, financial, and operational condition, including employee, customer, and supplier relationships. The purpose of due diligence is to ensure that you are aware of what you are buying or who you are merging with, by identifying the target’s liabilities and any hidden risks that could derail the transaction before it is too late. The target may appear to be financially stable with little liabilities, but all might not be what it seems! 

Legal advisors can help you thoroughly examine the target company by reviewing and highlighting existing contracts with customers, suppliers, and employees. They will also identify and alert you to any legal disputes or regulatory violations that you need to be aware of. 

Making the Deal

If you are happy with the due diligence, the next step is to draft the legal documents. Legal advisors should protect you against risks by drafting bespoke documents that clearly outline the responsibilities of both parties involved in the transaction. The legal documents should also include necessary protections should any issues arise following the deal.

Closing the deal

Once the documents and approvals are in place, the deal can be finalised. This involves making payments, signing the contracts, and transferring ownership. Your legal advisors are there to help facilitate a smooth closing by ensuring that all legal requirements are met, and the conditions of the agreements are fulfilled. 

Integration

Once the new company is officially yours or the merger is complete, the real challenge is combining the two companies. This includes ensuring that employees from both companies can work well together, streamlining systems and policies, and communicating with customers.

Communicating with stakeholders

SMEs often have close-knit teams and customer bases, so transparency is vital to maintaining trust and loyalty. Open dialogue helps alleviate employee concerns and cultural changes while ensuring customers and suppliers remain confident in the business.

Clear communication fosters buy-in from all parties, which ensures alignment, minimises disruption, and paves the way for a successful integration.

Summary

Successful mergers and acquisitions depend on meticulous planning and expert guidance to navigate the legal complexities. The Business Team at Birkett Long can provide expertise and attention to detail, helping your business unlock growth and achieve its strategic goals with greater peace of mind throughout the process. Please get in touch if you would like us to support you with an M&A transaction.