For many small and medium-sized enterprises (SMEs), organic growth can be slow and resource-intensive. Expanding through mergers and acquisitions (M&A) offers a strategic alternative to accelerate business growth, increase market share, and gain a competitive edge.
M&A allows SMEs to leverage existing assets, tap into new customer bases, and achieve economies of scale much faster than traditional expansion methods. However, M&A also comes with challenges, from financial risks to cultural integration issues.
In this article, we’ll explore how SMEs can use mergers and acquisitions for rapid expansion, the benefits and risks involved, and key strategies for a successful M&A process.
Why SMEs Should Consider M&A for Growth
Mergers and acquisitions aren’t just for large corporations—SMEs can also benefit significantly from this strategy. Here’s why M&A is an effective tool for business expansion:
✅ Faster Market Entry
Acquiring an existing company eliminates the time and effort needed to establish a brand in a new market. Instead of starting from scratch, SMEs can leverage the acquired company’s reputation, infrastructure, and customer base.
✅ Increased Market Share
By merging with or acquiring a competitor, an SME can eliminate competition, increase its customer base, and improve its bargaining power in the industry.
✅ Access to New Products & Technology
M&A can provide access to innovative products, patents, or advanced technology that might take years to develop in-house.
✅ Operational Efficiency & Cost Savings
Through economies of scale, SMEs can reduce costs on procurement, production, and marketing, making the business more profitable.
✅ Talent Acquisition & Expertise
Acquiring a company means gaining experienced employees, industry knowledge, and key leadership personnel who can contribute to business growth.
Types of M&A Strategies for SMEs
Before diving into an acquisition, SMEs need to determine which type of M&A strategy best aligns with their goals:
🔹 Horizontal Mergers
- Definition: Merging with or acquiring a competitor in the same industry.
- Example: A regional marketing agency acquiring a smaller local agency to expand its client base.
- Benefit: Increases market share and reduces competition.
🔹 Vertical Mergers
- Definition: Acquiring a business in the supply chain (either a supplier or distributor).
- Example: A clothing retailer acquiring a fabric manufacturer to control supply costs.
- Benefit: Reduces dependency on external suppliers and increases profit margins.
🔹 Conglomerate Mergers
- Definition: Merging with a company in a completely different industry.
- Example: A logistics company acquiring a software development firm.
- Benefit: Diversifies revenue streams and reduces business risk.
🔹 Strategic Acquisitions
- Definition: Acquiring a smaller company with specific technology, expertise, or market position that aligns with the SME’s expansion goals.
- Example: A fintech startup acquiring a cybersecurity firm to enhance security offerings.
- Benefit: Accelerates innovation and strengthens core business operations.
Key Steps for SMEs to Execute a Successful M&A
Step 1: Define Your M&A Goals
- Identify why you want to merge with or acquire another business.
- Align the M&A strategy with your business growth objectives.
- Set clear expectations on the expected financial and operational impact.
Step 2: Identify and Evaluate Potential Targets
- Conduct market research to find businesses that align with your goals.
- Assess the target company’s financial health, brand reputation, and operational efficiency.
- Ensure cultural and organizational compatibility to reduce post-merger friction.
Step 3: Conduct Due Diligence
- Analyze financial statements, liabilities, legal contracts, and assets.
- Check for any hidden risks, such as pending lawsuits or debt issues.
- Evaluate the company’s existing workforce, leadership, and management style.
Step 4: Negotiate Terms and Financing
- Determine the purchase price and financing structure (cash, stock, or debt financing).
- Negotiate deal terms, including ownership stake, management roles, and operational integration plans.
- Consider external funding options such as bank loans, private equity, or venture capital.
Step 5: Integrate and Optimize
- Develop a post-merger integration strategy to unify teams, systems, and processes.
- Communicate with employees, customers, and stakeholders to ensure a smooth transition.
- Monitor performance and adjust strategies based on post-merger KPIs.
Challenges and Risks of M&A for SMEs
While M&A offers exciting growth opportunities, SMEs should also be aware of potential risks:
Financial Strain
- Acquisitions require significant capital, and overpaying for a deal can put financial pressure on the acquiring business.
- Solution: Carefully assess financial feasibility and consider structured financing options.
Cultural & Operational Differences
- Differences in company culture, management styles, and work ethics can cause integration challenges.
- Solution: Conduct cultural assessments and create a detailed integration plan.
Employee Resistance & Turnover
- Mergers often lead to employee uncertainty and job redundancies, which can result in resistance or resignations.
- Solution: Prioritise transparent communication and offer retention incentives to key employees.
Regulatory & Compliance Issues
- Some industries have strict antitrust and compliance laws that can complicate acquisitions.
- Solution: Consult legal experts to ensure regulatory compliance.
Case Study: Visma Acquires Holded to Expand in the Spanish Market
Overview
- Acquirer: Visma, a Norwegian cloud software company specializing in enterprise solutions.
- Target: Holded, a Spanish SaaS company providing cloud-based accounting and ERP software for SMEs.
- Deal Value: Estimated at €120 million ($141 million).
Why This M&A Happened
✅ Market Expansion: Visma wanted to expand into Spain’s fast-growing SME software market without having to build brand recognition from scratch.
✅ Technology & Product Synergy: Holded’s accounting and ERP software complemented Visma’s existing product portfolio.
✅ Existing Customer Base: By acquiring Holded, Visma gained access to thousands of SME customers in Spain.
✅ Stronger Competitive Position: Instead of competing with Holded, Visma absorbed their market share instantly.
Results of the M&A
- Visma successfully entered the Spanish SME market without the long process of brand-building.
- Holded scaled faster with Visma’s financial backing and global expertise.
- The acquisition created synergies in R&D, allowing both companies to enhance their software offerings.
This strategic acquisition mirrors how SMEs can leverage M&A to expand internationally, increase their market share, and enhance product offerings—without going through the slow and expensive process of organic growth.
Is M&A Right for Your SME?
Mergers and acquisitions can be a powerful growth tool for SMEs, offering rapid market expansion, increased competitiveness, and access to new resources. However, a well-planned strategy, thorough due diligence, and a strong integration plan are essential for success.
If you’re considering M&A for your SME, focus on:
✔️ Clearly defining your growth objectives.
✔️ Identifying strategic acquisition targets.
✔️ Ensuring financial and cultural compatibility.
✔️ Developing a strong post-merger integration plan.
