​​​Small Business & Merger and Acquisition Strategies

Why is M&A relevant to small businesses?

At some stage in the life of an enterprise, whether it's big or small, and whether or not it's on the buy or the sell side, there's going to be a need for the owner to deal with the subject of mergers and acquisitions. Most small business owners are unlikely to have much experience in this field, and, usually, lack of experience means expensive advisers and consultants or a much higher risk of potentially catastrophic mistakes.

M_and_A_Image.jpgIn having a basic understanding of the inevitability of a brush with M&A activity, a small business owner may be better prepared to focus on the day-to-day business activities in the years that proceed that event.

M&A Activity for Growth

Depending on where an enterprise is in its particular business cycle and whether or not it has a sufficiently strong balance sheet and access to capital, the owner may consider embarking on a growth strategy through acquisitions. This path can be quite risky, requiring careful due diligence before closing and skillful management after in order to combine the enterprises and achieve planned synergies.

As with all business activities involving an investment of capital, there needs to be a conservative business plan for the outlook of the combined entities, along with a detailed road map of the activities required to combine all facets of the businesses.

Reasons for:

  • Synergies
  • Reduced competition
  • Enter new markets
  • Acquire new skills
  • New products
  • Customer diversification
  • Acquire new talent
  • Economies of scale

Risks of:

  • Merging cultures
  • Customer retention
  • Employee retention
  • Conflicting IT platforms
  • Data merging & migration
  • Brand conflicts
  • Sales channel conflicts
  • Poor due-diligence


M&A Activity for Exit

Any business owner preparing for exit and considering a sale should be looking to maximize the enterprise's value and the resulting sale proceeds. To do so, it's necessary to spend time in the months or years proceeding the transaction making sure all the key items a prospective buyer associates with value are in order. For a traditional business in a mature market, buyer valuations (normally based on cash flow or EBITDA) will be based on quite low multiples even with the "house in order." However, even for enterprises in mature markets, some strategies can be developed before a sale to make the business more attractive to prospective buyers, justifying increased multiples for higher valuations.

Minimum requirements:

  • Audited financials
  • 2+ years of consistent financial performance
  • Profitable
  • Evidence of increasing market share
  • Competent management team
  • Loyal customer base

Drivers Of Higher Valuations:

  • Diversified customer base
  • Revenue growth well above overall market
  • Qualified email marketing database
  • Strong foundation of website traffic development
  • Digital inbound marketing skills
  • Content Management Assets


Business Valuations - What do Buyers Look For?

  • Previous 12 months EBITDA by month
  • Consistent & profitable results
  • No customer concentration issues
  • Sales growth
  • Clean balance sheet
  • No legal or tax issues
  • Diversified supplier base
  • Competitive advantages
  • Patents & technology
  • Unique & emerging skill sets - i.e.
    • Inbound Digital Marketing
    • Organic Web Traffic
  • Owner financing and earn-out's
  • Non-compete agreements
  • Key employee employment agreements



The takeaway here is that careful attention needs to be paid to the day-to-day operations and business development activities to maximize the value of a business. As with most business activities, there's no set of easy answers. Without having the "house in order," exit opportunities will be significantly reduced, and opportunities for growth through acquiring competitors will not be possible. Small business mergers and acquisitions are relevant to many enterprises and not the exclusive domain of large enterprises.

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