Mergers and Acquisitions for SMEs

In the world of Capital markets Small is Ugly, Big is Beautiful and 2 plus 2 is 5. At Frist Celtic we don’t know of another way to double the size of your company and more than double its profits in 24 hours.

Big PLCs get bigger and expand through acquisition and mergers because it makes great business sense to do so but smaller companies don’t see the benefit of doubling their business overnight by Merging for many reasons that would not be an Issue for a PLC

So, if you’re an SME to understand this you need to understand the Capital Market Place. If you’re a small SME with an Annual profit of 400,000 if you want to sell your going to have a market value of between 800,000 and 1.6 million without any real estate assets. So, for most owners under their 50s it makes no business sense to sell especially at two times net profit. It only when you hit your 60s and want to retire that you start to consider selling at almost any price.

The big issue for these companies is liquidity it’s not easy to sell and it’s also why investors don’t like to invest in this sector. However, the biggest issue is the Baby Boomers syndrome in that there are a lot of owners just turning 70 who want to retire and enjoy their lives and just want to sell their business. The main issue for them as there is so many people in the same position on 20% of these types of businesses actually get sold for all the reasons above.

So, if you’re a small business enterprise why not copy what the big PLCs do and create value and liquidity for your business via a merger. The bigger the company the bigger the multiple your company is valued at. A small company could be valued at less than 2 times its next profit but a company like Apple is over 20 times its net profit.

An example of the power of merging is that you have two companies making 200,000 a year each they merge and then now have 400,000 a year profit but with cost savings across the two companies the profit increase to 500,000 this means the 50% of the new company is worth more profit with the added advantage that the multiple of net profit the business can sell for also increases

There are very many different Merger and Acquisition strategies that SMEs can employ and we at First Celtic would love to help you explore them.